As filed with the Securities and Exchange Commission
on July 2, 1996
Registration No. 33-33144; 811-6030
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Post-Effective Amendment No. 18 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 19 (X)
(Check appropriate box or boxes)
------------------------
THE CAPITOL MUTUAL FUNDS
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C> <C>
( ) Immediately upon filing pursuant to Rule 485(b); or ( ) on (date) pursuant to Rule 485(b), or
(X) 60 days after filing pursuant to Rule 485(a), or ( ) on (date) pursuant to Rule 485(a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2) ( ) on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of beneficial interest in the Registrant, without par value,
has previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Registrant filed on June 27, 1996, the
notice required by Rule 24f-2 for its fiscal year ended April 30, 1996 (File No.
33-33144; 811-6030).
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 18 to the Registration
Statement of The Capitol Mutual Funds (d/b/a/ Nations Institutional
Reserves) (the "Trust") is being filed in order to amend certain
investment policies applicable to the Trust's investment portfolios
(the "Portfolios"), and to effect certain non-material changes. More
specifically, the Portfolios' fundamental investment limitation
concerning restricted securities is amended to limit its application to
illiquid restricted securities, and Nations Cash Reserves' investment
policy concerning concentration is amended so that such Portfolio would
no longer be required to concentrate its investments in obligations
issued by the banking industry.
<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A/ NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Item No. Location
PART A - Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and
Nations Municipal Reserves
<S> <C> <C>
Item 1. Cover Page...................................................... Cover Page
Item 2. Synopsis........................................................ Expenses Summary
Item 3. Condensed Financial Information................................. Financial Highlights
Item 4. General Description of Registrant............................... The Trust; Investment Objectives
and Policies; General Investment
Policies; Investment
Limitations; Fundamental Policies
Item 5. Management of the Fund.......................................... Trustees of the Trust; The
Adviser; The Administrator and
Co-Administrator
Item 5A. Management's Discussion of Fund Performance................ *
Item 6. Capital Stock and Other Securities.............................. Voting Rights; Dividends; Taxes
Item 7. Purchase of Securities Being Offered............................ Purchase, Redemption and
Exchange of Shares; Distribution
Plan; Shareholder Servicing Plan
Item 8. Redemption or Repurchase........................................ Purchase, and Redemption and
Exchange of Shares
Item 9. Pending Legal Proceedings....................................... *
PART B - Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and
Nations Municipal Reserves
Item 10. Cover Page..................................................... Cover Page
</TABLE>
- --------------------------------
* Not Applicable
1
<PAGE>
<TABLE>
<CAPTION>
N-1A Item No. Location
<S> <C> <C>
Item 11. Table of Contents.............................................. Table of Contents
Item 12. General Information and History................................ The Trust
Item 13. Investment Objectives and Policies............................. Description of Permitted
Investments; Investment
Limitations; Securities Lending
Item 14. Management of the Fund......................................... Trustees and Officers
Item 15. Control Persons and Principal Holders of Securities............ 5% Shareholders
Item 16. Investment Advisory and Other Services............................ The Adviser; The Administrator
and Co-Administrator;
Distribution and Shareholder
Servicing Plans; and Custodian
and Transfer Agent
Item 17. Brokerage Allocation and Other Practices....................... Portfolio Transactions
Item 18. Capital Stock and Other Securities............................. Description of Shares
Item 19. Underwriters................................................... Distribution and Shareholder
Servicing Plans
Item 20. Calculation of Performance Data................................ Performance Information
Item 21. Financial Statements........................................... Experts and Financial Information
</TABLE>
2
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as
The Capitol Mutual Funds) (the "Trust") is an
open-end management investment company which seeks
to provide a convenient and economical means of
investing in one or more professionally managed
portfolios. The Trust's portfolios offer multiple
classes of shares; this Prospectus relates to the
Capital Class Shares of the following diversified
money market portfolios (each, a "Portfolio"):
NATIONS CASH RESERVES, NATIONS TREASURY RESERVES,
NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL
RESERVES.
The Trust's Capital Class Shares are offered to
institutional investors that meet the $1,000,000
minimum initial investment requirement and to
NationsBank, N.A. ("NationsBank"), its affiliates
and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary,
agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH PORTFOLIO TO USE
ITS BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE. AN INVESTMENT IN A
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT EACH
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated August 31, 1996 has been
filed with the Securities and Exchange Commission
("SEC") and is available without charge by writing
or calling the Trust at the address or telephone
number indicated in the column to the right. The
SAI is incorporated into this Prospectus by
reference. NationsBanc Advisors, Inc. ("NBAI") is
the investment adviser to the Portfolios.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Portfolios. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE PORTFOLIOS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO THE TRUST, FOR WHICH THEY
ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE
TRUST.
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 Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
CAPITAL CLASS SHARES
AUGUST 31, 1996
For purchase, redemption
and
performance information
call:
1-800-353-0428
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
Expenses Summary 3
Financial Highlights 5
The Trust 9
Investment Objectives and Policies 9
General Investment Policies 12
Investment Limitations 12
Fundamental Policies 13
The Adviser 13
The Administrator and Co-Administrator 15
The Distributor 16
Trustees of the Trust 16
Purchase, Redemption and Exchange of Shares 16
Voting Rights 18
Dividends 18
Performance 19
Taxes 19
Independent Accountant, Custodian and Transfer
Agent 21
Appendix A -- Portfolio Securities 21
Appendix B -- Description of Ratings 26
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE 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 THE TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY
THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the
Portfolios. The following table summarizes operating expenses for the Capital
Class Shares of the Portfolios. There are no transaction fees imposed upon the
purchase, redemption or exchange of shares. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in the Capital Class
Shares of the Portfolios over specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
Advisory Fees (after fee waivers)1 .04% .06% .05% .05%
Other Expenses (after reimbursements) .16% .14% .15% .15%
Total Operating Expenses (after fee waivers)1 .20% .20% .20% .20%
</TABLE>
1 The adviser, sub-investment adviser, administrator and co-administrator of the
Trust have agreed voluntarily to waive a portion or all of their fees and to
reimburse certain expenses of the Portfolios, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, sub-investment
adviser, administrator and co-administrator each reserves the right to
terminate its waiver or reimbursement at any time in its sole discretion.
Absent these waivers, the Advisory Fees and Total Operating Expenses for
Nations Cash Reserves would be .30% and .46% of average net assets,
respectively; for Nations Treasury Reserves would be .30% and .44% of average
net assets, respectively; for Nations Government Reserves would be .30% and
.45% of average net assets, respectively; and for Nations Municipal Reserves
would be .30% and .45% of average net assets, respectively. Financial
institutions that are the record owner of shares for the account of their
customers may impose separate fees for account services to their customers.
Additional operating expense information may be found under "The Adviser,"
"The Administrator and Co-Administrator" and "The Distributor."
3
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Capital Class Shares assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
Nations Cash Reserves $2 $6 $11 $26
Nations Treasury Reserves $2 $6 $11 $26
Nations Government Reserves $2 $6 $11 $26
Nations Municipal Reserves $2 $6 $11 $26
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. Certain figures contained in the above tables are based on amounts
incurred during each Portfolio's most recent fiscal year and have been adjusted
as necessary to reflect current service provider fees and/or reimbursements. If
current fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. The information set forth in the
foregoing table and examples relates only to the Capital Class Shares. The Trust
also offers the Liquidity Class, the Adviser Class and the Market Class Shares
(formerly Class B, Class C and Class D Shares, respectively) of the Portfolios
which are subject to the same expenses plus additional distribution and/or
shareholder servicing fees. Additional operating expense information may be
found under "The Adviser," "The Administrator and Co-Administrator" and "The
Distributor."
4
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountant, whose June 20, 1995 report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
appearing in the Trust's Annual Financial Report for the fiscal year ended April
30, 1995, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0480 0.0283 0.0315 0.0492 0.0392
Dividends From Net Investment Income (0.0480) (0.0283) (0.0315) (0.0492) (0.0392)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.91% 2.87% 3.19% 5.03% 7.35%+
Ratios To Average Net Assets/Supplemental
Data:
Net Assets, End Of Year (000's) $ 134,064 $ 109,852 $ 55,739 $ 100,943 $ 19,387
Ratio Of Operating Expenses To Average Net
Assets 0.29% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To Average
Net Assets 4.96% 2.83% 3.15% 4.61% 7.04%+
Ratio Of Operating Expenses To Average Net
Assets Without Waivers 0.52% 0.56% 0.59% 0.74% 0.79%+
Ratio Of Net Investment Income To Average
Net Assets Without Waivers 4.73% 2.72% 3.01% 4.32% 6.70%+
Net Investment Income Per Share Without
Waivers $ 0.0458 $ 0.0272 $ 0.0298 $ 0.0455 $ 0.0373
</TABLE>
* The Nations Cash Reserves Capital Class Shares commenced operations on
October 10, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
5
<PAGE>
NATIONS TREASURY RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0480 0.0298 0.0323 0.0481 0.0176
Net Realized Gain On Investments -- -- 0.0001 0.0003 --
Total From Investment Operations 0.0480 0.0298 0.0324 0.0484 0.0176
Less Distributions:
Dividends From Net Investment Income (0.0480) (0.0298) (0.0323) (0.0481) (0.0176)
Distributions From Net Realized Gains -- -- (0.0001) (0.0003) --
Total Distributions (0.0480) (0.0298) (0.0324) (0.0484) (0.0176)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.91% 3.02% 3.29% 4.92% 5.89%+
Ratios To Average Net Assets/Supplemental
Data:
Net Assets, End Of Year (000's) $ 251,694 $ 338,504 $ 418,644 $ 19,587 $ 4,519
Ratio Of Operating Expenses To Average Net
Assets 0.20% 0.20% 0.20% 0.26% 0.45%+
Ratio Of Net Investment Income To Average
Net Assets 4.79% 2.99% 2.99% 4.39% 5.85%+
Ratio Of Operating Expenses To Average Net
Assets Without Waivers 0.50% 0.52% 0.72% 1.06% 0.94%+
Ratio Of Net Investment Income To Average
Net Assets Without Waivers 4.50% 2.67% 2.48% 3.59% 5.36%+
Net Investment Income Per Share Without
Waivers $ 0.0451 $ 0.0267 $ 0.0251 $ 0.0368 $ 0.0161
</TABLE>
* The Nations Treasury Reserves Capital Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS GOVERNMENT RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0463 0.0278 0.0312 0.0343 0.0168
Net Realized Gain On Investments -- -- -- 0.0023 --
Total From Investment Operations 0.0463 0.0278 0.0312 0.0366 0.0168
Less Distributions:
Dividends From Net Investment Income (0.0463) (0.0278) (0.0312) (0.0343) (0.0168)
Distributions From Net Realized Gains -- -- -- (0.0023) --
Total Distributions (0.0463) (0.0278) (0.0312) (0.0366) (0.0168)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.72% 2.82% 3.15% 3.71% 5.57%+
Ratios To Average Net Assets/Supplemental
Data:
Net Assets, End Of Year (000's) $ 2 $ 10,819 $ 7,396 $ 1,800 $ 295
Ratio Of Operating Expenses To Average Net
Assets 0.32% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To Average
Net Assets 4.35% 2.78% 3.07% 4.24% 5.89%+
Ratio Of Operating Expenses To Average Net
Assets Without Waivers 0.54% 0.51% 0.64% 0.76% 0.80%+
Ratio Of Net Investment Income To Average
Net Assets Without Waivers 4.13% 2.72% 2.88% 3.93% 5.54%+
Net Investment Income Per Share Without
Waivers $ 0.0439 $ 0.0272 $ 0.0288 $ 0.0313 $ 0.0158
</TABLE>
* The Nations Government Reserves Capital Class Shares commenced operations on
January 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS MUNICIPAL RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0313 0.0198 0.0231 0.0356 0.0245
Dividends From Net Investment Income (0.0313) (0.0198) (0.0231) (0.0356) (0.0245)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.19% 2.00% 2.34% 3.62% 4.62%+
Ratios To Average Net Assets/Supplemental
Data:
Net Assets, End Of Year (000's) $ 32,353 $ 35,698 $ 26,145 $ 18,150 $ 5,064
Ratio Of Operating Expenses To Average Net
Assets 0.23% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To Average
Net Assets 3.36% 1.98% 2.27% 3.38% 4.70%+
Ratio Of Operating Expenses To Average Net
Assets Without Waivers And/Or Expenses
Reimbursed 0.59% 0.58% 0.66% 0.89% 0.99%+
Ratio Of Net Investment Income To Average
Net Assets Without Waivers And/Or
Expenses Reimbursed 2.99% 1.85% 2.05% 2.94% 4.16%+
Net Investment Income Per Share Without
Waivers And/Or Expenses Reimbursed $ 0.0279 $ 0.0186 $ 0.0203 $ 0.0296 $ 0.0216
</TABLE>
* The Nations Municipal Reserves Capital Class Shares commenced operations on
October 23, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
8
<PAGE>
The Trust
The Capitol Mutual Funds, doing business as Nations Institutional Reserves, is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Fund Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc. and the Trust. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Portfolio is a series of the Trust. Except for
differences between classes of a Portfolio pertaining to distribution and
shareholder servicing arrangements, each share of each Portfolio represents an
equal proportionate interest in that Portfolio. This Prospectus relates to the
Capital Class Shares of the Trust's Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves Portfolios.
NBAI is the investment adviser and TradeStreet is the sub-investment adviser for
each Portfolio. Information regarding the Liquidity Class, Adviser Class and
Market Class Shares of the Portfolios is contained in separate prospectuses that
may be obtained from the Trust's distributor. To obtain additional information
regarding the Portfolios' other classes of shares which may be available to you,
contact Nations Fund at 1-800-353-0428.
Investment Objectives And Policies
Each Portfolio seeks to comply with regulations of the SEC applicable to money
market funds. These regulations impose certain quality, maturity and
diversification restraints on investments by a Portfolio. Under these
regulations, each Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will acquire only eligible securities maturing
in 397 days or less. For further information regarding these restraints, see
"Appendix A -- Portfolio Securities."
NATIONS CASH RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in obligations denominated in U.S. dollars consisting
of: (i) commercial paper; (ii) obligations (including certificates of deposit,
time deposits, and bankers' acceptances) of thrift institutions, U.S. commercial
banks (including foreign branches of such banks), and U.S. and London branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations of issuers of commercial paper whose commercial
paper is eligible for purchase by the Portfolio; (iv) instruments eligible for
acquisition by Nations Government Reserves (see below); and (v) repurchase
agreements and reverse repurchase agreements involving any of the foregoing
obligations or qualified first-tier money market collateral. The Portfolio
also may invest in guaranteed investment contracts and in securities issued by
other investment companies, consistent with its investment objective and
policies. The short-term obligations that may be purchased by the Portfolio
include instruments
9
<PAGE>
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships.
The Portfolio reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than twenty-five percent of the Portfolio's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Portfolio may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements and cash.
NATIONS TREASURY RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in direct obligations issued by the U.S. Treasury,
separately traded component parts of such obligations transferable through the
Federal book-entry system (known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"), and repurchase agreements and reverse
repurchase agreements involving such obligations. The Portfolio also may invest
in obligations the principal and interest of which are backed by the full faith
and credit of the United States Government, provided that the Portfolio shall,
under normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government. The Portfolio also may invest in securities issued by other
investment companies, consistent with its investment objective and policies.
The dealers selected for the Portfolio must meet criteria established by S&P.
NATIONS GOVERNMENT RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest exclusively in instruments eligible for acquisition by
Nations Treasury Reserves and in obligations issued or guaranteed as to
principal and interest by the agencies and instrumentalities of the U.S.
Government and repurchase agreements and
reverse repurchase agreements involving such obligations.
NATIONS MUNICIPAL RESERVES
The Portfolio's investment objective is to preserve principal value and maintain
a high degree of liquidity while providing current income exempt from Federal
income taxes. There is no assurance that this objective will be met.
The Portfolio will invest in U.S. dollar denominated municipal securities of
issuers located in all fifty states, the District of Columbia, Puerto Rico and
other U.S. territories and possessions. At least 80% of the Portfolio's total
assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
Municipal notes in which the Portfolio may invest consist of general obligation
notes, tax anticipation notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
The Portfolio's investments in any of the notes described above will be limited
to those
obliga-
10
<PAGE>
tions (i) where both principal and interest are backed by the full faith and
credit of the United States, (ii) which are rated MIG-1 or VMIG-1 at the time of
investment by Moody's Investors Service, Inc. ("Moody's"), (iii) which are rated
SP-1 at the time of investment by Standard & Poor's Corporation ("S&P"), or (iv)
which, if not rated, are of comparable quality in the judgment of the Adviser to
obligations rated MIG-1, VMIG-1 or SP-1. The Portfolio also may invest in
securities issued by other investment companies, consistent with its investment
objective and policies.
The Portfolio invests in municipal securities which are determined to present
minimal credit risks and which at the time of purchase are considered to be of
"high quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA Limited or its
affiliate IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") or Aa or higher by Moody's, in the case of bonds; rated "A" or
higher by D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain
bonds which are unrated securities (I.E., lacking a short-term rating from the
requisite number of nationally recognized statistical rating organizations);
rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or
"MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1" or
higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six nationally
recognized statistical rating organizations (collectively, "NRSROs"). Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable municipal securities ratings are described in "Appendix
B -- Description of Ratings."
The payment of principal and interest on most securities purchased by the
Portfolio will depend upon the ability of the issuers to meet their obligations.
The District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer." For more
information concerning municipal securities, see "Appendix A -- Municipal
Securities."
The Adviser has discretion to invest up to 20% of the Portfolio's assets in
taxable money market instruments (consisting of obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements) and municipal securities of the type described above, which are
subject to the alternative minimum tax. However, the Portfolio generally intends
to be fully invested in federally tax-exempt securities.
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General Investment Policies
For a description of the Portfolios' permitted investments see "Appendix
A -- Portfolio Securities" and for further information about ratings see the
"Appendix B -- Description of Ratings."
Each Portfolio except Nations Municipal Reserves may lend the securities in
which it is invested pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. Government or its agencies
or any combination of cash and such securities. The Portfolio will continue to
receive interest on the securities loaned while simultaneously earning interest
on the investment of cash collateral in U.S. Government securities. Collateral
is marked to market daily to provide a level at least equal to the market value
of the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Portfolio invests guarantees only the payment of
principal and interest on the guaranteed security and does not guarantee the
yield or value of that security or the yield or value of shares of that
Portfolio.
Investment Limitations
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if as a result more than
5% of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply (a) with respect to Nations Cash Reserves,
Nations Treasury Reserves and Nations Government Reserves, to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) a Portfolio may
enter into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Portfolio's total assets;
and (c) each Portfolio except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the SAI.
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RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by the Portfolios are subject to limitations imposed under
regulations adopted by the SEC. These regulations generally require money market
funds to acquire only U.S. dollar denominated obligations with remaining
maturities of 397 days or less and to maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, money market funds may
acquire only obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (or one if it is the only NRSRO rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Adviser will determine that an obligation presents minimal credit risks or
that unrated instruments are of comparable quality in accordance with guidelines
established by the Trustees. In addition, investments by Nations Cash Reserves,
Nations Government Reserves and Nations Treasury Reserves in second tier
securities are subject to the further constraints that (i) no more than 5% of a
Portfolio's assets may be invested in such securities in the aggregate, and (ii)
any investment in such securities of one issuer is limited to the greater of 1%
of the Portfolio's total assets or $1 million. In addition, such Portfolios may
only invest up to 25% of their total assets in the first tier securities of a
single issuer for three business days.
Fundamental Policies
The investment objective of each Portfolio and the investment limitations
described above are fundamental policies of each Portfolio. It is also a
fundamental policy of each Portfolio to seek to maintain a constant net asset
value of $1.00 per share. There is no assurance that the Portfolios will be able
to maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Portfolio without the
consent of the holders of a majority of that Portfolio's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the Portfolio's outstanding shares, whichever is less.
The Adviser
NationsBanc Advisors, Inc. serves as investment adviser to the Portfolios. NBAI
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza,
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Charlotte, North Carolina 28255, serves as sub-investment adviser to the
Portfolios. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides trust and investment management services to individuals,
corporations, and institutions, both nationally and internationally.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Portfolio's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Portfolio, makes decisions
with respect to and places orders for that Portfolio'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 NationsBank or
which have sold shares in the Portfolio, if the Adviser believes 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 Portfolio may
invest in securities of companies with which NationsBank has a lending
relationship.
The Trust 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.
Morrison & Foerster LLP, counsel to the Trust and special counsel to
NationsBank, has advised the Trust and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the Investment Advisory and
Sub-Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent such subsidiaries of NationsBank from continuing
to perform, in whole or in part, such services. If such subsidiaries of
NationsBank were prohibited from performing any such services, it is expected
that the Board of Trustees of the Trust would recommend to each Portfolio's
shareholders that they approve new advisory and/or sub-advisory agreements with
another entity or entities qualified to perform such services.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Portfolio. For the services provided and the expenses assumed pursuant to a the
Sub-Advisory Agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of 0.033% of the average daily net
assets of each Portfolio.
NBAI, TradeStreet and the administrator and the co-administrator of the
Portfolios have voluntarily agreed to waive their fees (and reimburse the
Portfolios for certain expenses) in order to limit the total annualized
operating expenses of the Capital Class Shares of the Portfolios (as a
percentage of average daily net assets) to 0.20%.
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NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated. For the fiscal year ended April 30, 1995, the Portfolios paid
NationsBank under a prior Advisory Agreement an advisory fee, after waivers, at
the indicated rate of the Portfolios' average net assets: Nations Cash
Reserves -- 0.11%; Nations Treasury Reserves -- 0.04%; Nations Government
Reserves -- 0.13%; and Nations Municipal Reserves -- 0.07%.
The Administrator and Co-Administrator
Stephens Inc. ("Stephens"), with principal offices at 111 Center Street, Little
Rock, Arkansas 72201, serves as the administrator of the Trust pursuant to an
Administration Agreement. Pursuant to the terms of the Administration Agreement,
Stephens provides various administrative and corporate secretarial services to
the Portfolios, 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 Portfolios.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Portfolios pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Portfolios,
including performing calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain general accounting records for the Portfolios. 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 Portfolio's average daily net assets.
Prior to April 30, 1994, SEI Financial Management Corporation served as the sole
administrator of the Portfolios.
For the fiscal year ended April 30, 1995, the Portfolios paid their
administrator a fee, after waivers, at the indicated rate of average net assets:
Nations Cash Reserves -- 0.06%; Nations Treasury Reserves -- 0.06%; Nations
Government Reserves -- 0.06%; and Nations Municipal Reserves -- 0.06%.
In addition, the Trust pays its other operating expenses, including audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial and transfer agency services and
registering shares under Federal and state securities laws and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
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The Distributor
Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer with
principal offices at 111 Center Street, Little Rock, Arkansas 72201. The Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Portfolios. No
compensation is paid to Stephens for distribution services for the Capital Class
Shares.
In addition to the Capital Class Shares, the Portfolios also offer the Liquidity
Class, the Adviser Class and the Market Class Shares. The Liquidity Class Shares
are offered to institutional investors which meet the $500,000 minimum initial
investment requirement and to NationsBank and its affiliates and correspondents,
for the investment of their own funds or funds for which they act in a
fiduciary, agency or custodial capacity. The Liquidity Class Shares of the
Portfolios bear aggregate distribution and shareholder servicing fees of up to
0.85% of the class's average daily net assets. The Adviser Class Shares are
offered to institutional investors having a corporate cash management
arrangement with a bank, broker/dealer or other financial institution that has
entered into a shareholder servicing agreement with the Trust and that meet the
$100,000 minimum initial investment requirement. The Adviser Class Shares also
bear shareholder servicing fees of up to 0.25% of the Class's average net
assets. The Market Class Shares are offered through banks, broker/dealers and
other financial institutions that have entered into a shareholder servicing
agreement with the Trust to individuals and institutions which meet the $250,000
minimum initial investment for such shares. The Market Class Shares bear
aggregate distribution and shareholder servicing fees of up to 0.45% of the
class's average net assets. A salesperson and any other person or entity
entitled to receive compensation for selling or servicing Portfolio shares may
receive different compensation with respect to one particular class of shares
over another in a Portfolio.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
Purchase, Redemption and Exchange
of Shares
PURCHASES: Capital Class Shares are offered to institutional investors,
including NationsBank, its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity. The minimum initial investment in Capital Class Shares is $1,000,000.
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Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day") Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day. 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 (as defined below). A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Municipal Reserves). A purchase order received
after such time will not be accepted; notice thereof will be given to the
institution placing the order and any funds received will be returned promptly
to the sending institution. If federal funds are not available by the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time), the order
will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by Stephens or the Transfer Agent.
The net asset value of shares is calculated as of 3:00 p.m., Eastern time, (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. The assets of the Portfolios are valued based upon the amortized
cost method. Although the Portfolios seek to maintain a net asset value per
share of $1.00, there can be no assurance that the net asset value per share
will not vary.
REDEMPTIONS: Redemption orders must be received on a Business Day before 3:00
p.m., Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), and payment will normally be wired the same day. The Trust reserves
the right to wire redemption proceeds within three Business Days after receiving
a redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Portfolio. Redemption orders will not be accepted by Stephens
or the Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective.
Due to the high cost of maintaining Portfolio accounts with small balances, the
Trust reserves the right to redeem an investor's account and send the proceeds
to such investor if the balance falls below $250,000 because of a redemption.
However, investors will be given 30 days' notice to make an additional
investment to increase their account balance to $250,000 or more.
EXCHANGES: The exchange feature enables a Shareholder of Capital Class Shares of
a Portfolio to acquire Capital Class Shares of another Portfolio when that
Shareholder believes that a shift between Portfolios is an appropriate
investment decision. An exchange of Capital Class Shares for Capital Class
Shares of another Portfolio is made on the basis of the next calculated net
asset value per share of each Portfolio after the exchange order is received.
The Portfolio and each of the other funds of Nations Fund may limit the number
of times this exchange feature may be exercised by a Shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
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The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and Shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
Shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the Shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. If a Shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
Shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Voting Rights
Each share held entitles the Shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a special
meeting called upon written request of Shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
Dividends
The net income of each Portfolio is determined and declared on each Business Day
as a dividend to Shareholders of record as of 3:00 p.m., Eastern time, (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on that day.
Dividends are paid by each Portfolio in additional shares of the same class,
unless the Shareholder has elected to take such payment in cash,
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on the first Business Day of each month. Shareholders may change their election
by providing written notice to the Transfer Agent at least 15 days prior to the
change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
Performance
From time to time the Portfolios may advertise their "current yield" and
"effective compound yield." SUCH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio
refers to the income generated by an investment in the Portfolio over a stated
seven-day period. 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 the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
Nations Municipal Reserves also may advertise its "tax-equivalent yield," which
is calculated by determining the rate of return that would have to be achieved
on a fully taxable investment to produce the after-tax equivalent of the
Portfolio's yield, assuming certain tax brackets for Shareholders.
The yield of the Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in a
Portfolio will actually yield in the future. Performance quotations will be
computed separately for each class of a Portfolio's shares. Because of
differences in the fees and expenses borne by the Liquidity Class, the Adviser
Class and the Market Class Shares, the net yield on such shares can be expected,
at any given time, to be lower than the net yield on the Capital Class Shares.
Each Portfolio's annual report contains additional performance information and
is available on request without charge from Stephens.
In addition, a Portfolio from time to time may compare its performance to that
of other mutual funds tracked by mutual fund rating services, of broad groups of
comparable mutual funds or of unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
Taxes
Each Portfolio is treated as a separate entity for Federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As long as a Portfolio qualifies
for this special tax treatment, it will be relieved of Federal income tax on
that part of its
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net investment income (including, for this purpose, net short-term capital gain)
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) that it distributed to Shareholders.
Each Portfolio intends to distribute substantially all of its net investment
income (including, for this purpose, net short-term capital gain) to
Shareholders. Dividends declared by Nations Cash Reserves, Nations Government
Reserves and Nations Treasury Reserves from net investment income will be
taxable to Shareholders as ordinary income whether received in cash or in
additional shares and will not qualify for the corporate dividends-received
deduction. Nations Municipal Reserves may pay "exempt-interest dividends" to its
Shareholders if, at the close of each quarter of its taxable year, at least 50%
of the value of such Portfolio's assets consists of obligations the interest on
which is excludable from gross income. Exempt-interest dividends constitute the
portion of the aggregate dividends, as designated by the Portfolio, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt interest dividends are excludable from a Shareholder's gross income for
Federal income tax purposes, but may have certain collateral Federal income tax
consequences, as described in the SAI. Any dividends attributable to Nations
Municipal Reserve's taxable income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares to the extent of the
Portfolio's earnings and profits and will not qualify for the corporate
dividends-received deduction.
Any net capital gain will be distributed at least annually and will be taxed to
Shareholders as long-term capital gain, regardless of how long a Shareholder has
held shares. The Portfolios will make annual reports to Shareholders of the
Federal income tax status of all distributions.
Ordinarily, Shareholders will include in income all dividends declared by a
Portfolio in the year those dividends are paid. However, dividends declared by a
Portfolio in October, November or December of any year and payable to
Shareholders of record on a date in any of those months will be deemed to have
been paid by the Portfolio and received by the Shareholders on December 31st, if
paid by the Portfolio during the following January.
Income received on direct U.S. Government obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Government obligations normally is not exempt from state taxation. Nations Cash
Reserves, Nations Government Reserves and Nations Treasury Reserves will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisors to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Federal law requires the Trust to withhold 31% from any dividends (other than
exempt-interest dividends) paid by the Trust and/or redemptions (including
exchange redemptions) that occur in certain Shareholder accounts if the
Shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified the Trust 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 withholdings results in
overpayment of taxes. Federal law also requires a Portfolio to withhold 30% or
the applicable tax treaty rate from dividends paid to cer-
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tain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations. Further tax
information is contained in the SAI.
Independent Accountant, Custodian and
Transfer Agent
Price Waterhouse LLP serves as the independent accountant of the Trust.
NationsBank of Texas, N.A., serves as each Portfolio's custodian (the
"Custodian"). The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Portfolio, (ii) $10.00 per repurchase
collateral transaction by the Portfolios, and (iii) $15.00 per purchase, sale
and maturity transaction involving the Portfolios.
TSSG serves as transfer agent (the "Transfer Agent") for each Portfolio's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Appendix A -- Portfolio Securities
The following is a description of the permitted investments for the Portfolios:
U.S. TREASURY OBLIGATIONS -- bills, notes, and bonds issued by the U.S. Treasury
and STRIPS. STRIPS are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, STRIPS may be subject to greater interest rate volatility than
interest paying U.S. Treasury Obligations.
U.S. GOVERNMENT AGENCY SECURITIES -- certain Federal agencies, such as the
Government National Mortgage Association, have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of certain of these agencies, while not direct obligations
of the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association or "FNMA").
BANKERS' ACCEPTANCES -- a bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to
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<PAGE>
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT -- a negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time: however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities; therefore, each Portfolio will not invest more than 10% of
its assets in such time deposits.
COMMERCIAL PAPER -- the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
GUARANTEED INVESTMENT CONTRACTS -- Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Portfolio may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Portfolio guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC becomes part of the general assets of the issuer,
and the contract is paid from the general assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by NationsBank. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC would be
considered an illiquid investment. Therefore, GICs are generally considered to
be illiquid investments.
OTHER INVESTMENT COMPANIES -- A Portfolio may invest in securities issued by
other investment companies to the extent such investments are consistent with
the Portfolio's investment objective and policies and permissible under the
Investment Company Act of 1940 (the "1940 Act"). As a shareholder of another
investment company, a Portfolio 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 Portfolio bears directly in connection with its own operations.
VARIABLE- AND FLOATING-RATE INSTRUMENTS -- certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Portfolios will
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or
22
<PAGE>
another institution, undertakes to notify promptly the holder of the security in
the event that the demand feature is substituted with a demand feature provided
by another issuer. (Note, however, that certain securities first issued on or
before June 3, 1996 are not subject to these rating and notice requirements.) An
instrument with a demand period exceeding seven days may be considered to be
illiquid if there is no secondary market for such security.
REPURCHASE AGREEMENTS -- agreements by which a person obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Portfolio may enter into repurchase
agreements jointly with other Portfolios and investment portfolios of the
Nations Fund family of mutual funds.
REVERSE REPURCHASE AGREEMENTS -- When a Portfolio 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 Portfolios 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
advantageous only if the interest cost to the Portfolios of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
At the time a Portfolio 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 Portfolios 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
Portfolios' 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 Portfolios' obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
the Portfolios 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 Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by a Portfolio are in most cases revenue
securities and are not payable from the
23
<PAGE>
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 Portfolio, a Portfolio 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 Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss. Some of these instruments may
be unrated, but unrated instruments purchased by a Portfolio will be determined
by the Adviser to be of comparable quality at the time of purchase to
instruments rated "high quality" by any major rating service. An issuer's
obligation to pay the principal of the note may be backed by an unconditional
bank letter or line of credit, guarantee, or commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Portfolio may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. Each Portfolio will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its total
assets unless the Adviser determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Portfolios' Board of Trustees.
Pursuant to these guidelines, the Adviser, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Portfolios expect that
they will only purchase rated municipal lease obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Portfolio's
limitation on the purchase of illiquid securities.
In addition, certain of the Portfolios 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
Portfolio's option specified municipal securities at a specified price. A
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and without intending to exercise its rights thereunder for trading
purposes.
Each Portfolio may invest in short-term securities, in commitments to purchase
such securities on a "when-issued" basis, and reserves the right to engage in
"put" transactions on a daily, weekly or monthly basis. Securities purchased on
a "when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues
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<PAGE>
to the Portfolio before settlement. These securities are subject to market
fluctuation due to changes in market interest rates. The Portfolios will only
commit to purchase a security on a when-issued basis with the intention of
actually acquiring the security and will segregate sufficient liquid assets to
meet its purchase obligation.
A "put" feature permits a Portfolio to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Portfolio. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Portfolio to meet redemptions and remain as fully invested as
possible in municipal securities. The Portfolios will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board. Nations Municipal Reserves
may invest more than 40% of its portfolio in puts or other securities guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Portfolio and affect its
share price.
Although each Portfolio does not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities that
are payable solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Portfolio's total assets are invested in municipal securities that are
payable from the revenues of similar projects, the Portfolio 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.
SECURITIES OF FOREIGN ISSUERS -- Foreign investments involve risks that are
different from investments in securities of U.S. issuers. These risks may
include future unfavorable political and economic developments, possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign issuers. Foreign branches of foreign banks are not
regulated by U.S. banking authorities and generally are not bound by accounting,
auditing and financial reporting standards comparable to U.S. banks. Nations
Cash Reserves may invest in obligations of foreign branches of U.S. banks and
U.S. and London branches of foreign banks.
SHORT TERM TRUST OBLIGATIONS -- Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by the
trust, either from the underlying securities owned by the trust or pursuant to
other arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Portfolio must satisfy the quality and maturity requirements
generally applicable to the Portfolio pursuant to Rule 2a-7 under the 1940 Act.
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<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa. 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 groups which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1.
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.
26
<PAGE>
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 rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
To provide more detailed indications of credit quality, the AA rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
27
<PAGE>
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the two 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.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the two highest long-term ratings used by IBCA:
28
<PAGE>
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
29
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as
The Capitol Mutual Funds) (the "Trust") is an
open-end management investment company which seeks
to provide a convenient and economical means of
investing in one or more professionally managed
portfolios. The Trust's portfolios offer multiple
classes of shares; this Prospectus relates to the
Liquidity Class Shares of the following diversified
money market portfolios (each, a "Portfolio"):
NATIONS CASH RESERVES, NATIONS TREASURY RESERVES,
NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL
RESERVES.
The Trust's Liquidity Class Shares are offered to
institutional investors that meet the $500,000
minimum initial investment requirement and to
NationsBank, N.A. ("NationsBank"), its affiliates
and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary,
agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH PORTFOLIO TO USE
ITS BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE. AN INVESTMENT IN A
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT EACH
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated August 31, 1996 has been
filed with the Securities and Exchange Commission
("SEC") and is available without charge by writing
or calling the Trust at its address or telephone
number indicated in the column to the right. The
SAI is incorporated into this Prospectus by
reference. NationsBanc Advisors, Inc. ("NBAI") is
the investment adviser to the Portfolios.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Portfolios. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE PORTFOLIOS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO THE TRUST, FOR WHICH THEY
ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE
TRUST.
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 Cash Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
LIQUIDITY CLASS SHARES
AUGUST 31, 1996
For purchase, redemption
and
performance information
call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
Expenses Summary 3
Financial Highlights 5
The Trust 9
Investment Objectives and Policies 9
General Investment Policies 11
Investment Limitations 12
Fundamental Policies 13
The Adviser 13
The Administrator and Co-Administrator 15
The Distributor 15
Trustees of the Trust 17
Purchase, Redemption and Exchange of Shares 17
Voting Rights 19
Dividends 19
Performance 19
Taxes 20
Independent Accountant, Custodian and Transfer
Agent 21
Appendix A -- Portfolio Securities 22
Appendix B -- Description of Ratings 26
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE 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 THE TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY
THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the
Portfolios. The following table summarizes operating expenses for the Liquidity
Class Shares of the Portfolios. There are no transaction fees imposed upon the
purchase, redemption or exchange of shares. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in the Liquidity Class
Shares of the Portfolios over specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Cash Nations Nations
Reserves Treasury Reserves Government Reserves
Advisory Fees (after fee waivers)1 .04% .06% .05%
Rule 12b-1 Fees1 .00% .00% .00%
Shareholder Servicing Fees1 .15% .15% .15%
Other Expenses (after reimbursements) .16% .14% .15%
Total Operating Expenses (after fee waivers)1 .35% .35% .35%
<CAPTION>
Nations
Municipal Reserves
Advisory Fees (after fee waivers)1 .05%
Rule 12b-1 Fees1 .00%
Shareholder Servicing Fees1 .15%
Other Expenses (after reimbursements) .15%
Total Operating Expenses (after fee waivers)1 .35%
</TABLE>
1 The adviser, sub-investment adviser administrator and co-administrator of the
Trust have agreed voluntarily to waive a portion or all of their fees and to
reimburse certain expenses of the Portfolios, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, sub-investment
adviser, administrator and co-administrator of the Trust each reserves the
right to terminate its waiver or reimbursement at any time in its sole
discretion. Absent these waivers, the Advisory Fees, Rule 12b-1 Fees,
Shareholder Servicing Fees and Total Operating Expenses for Nations Cash
Reserves would be .30%, .60%, .25% and 1.31% of average net assets,
respectively; for Nations Treasury Reserves would be .30%, .65%, .25% and
1.34% of average net assets, respectively; for Nations Government Reserves
would be .30%, .60%, .25% and 1.30% of average net assets, respectively; and
for Nations Municipal Reserves would be .30%, .60%, .25% and 1.30% of average
net assets, respectively. Additional operating expense information may be
found under "The Adviser," "The Administrator and Co-Administrator" and "The
Distributor."
3
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Liquidity Class Shares of the indicated Portfolio assuming (1) a 5% annual
return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 3 Years 5 Years
Nations Cash Reserves $4 $11 $20
Nations Treasury Reserves $4 $11 $20
Nations Government Reserves $4 $11 $20
Nations Municipal Reserves $4 $11 $20
<CAPTION>
10 Years
Nations Cash Reserves $44
Nations Treasury Reserves $44
Nations Government Reserves $44
Nations Municipal Reserves $44
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. Certain figures contained in the above tables are based on amounts
incurred during each Portfolio's most recent fiscal year and have been adjusted
as necessary to reflect current service provider fees and/or reimbursements. If
current fee waivers and/or reimbursements are discontinued, the amounts in the
"Examples" above may increase. The information set forth in the foregoing table
and examples relates only to the Liquidity Class Shares. The Trust also offers
Capital Class, Adviser Class and Market Class Shares (formerly Class A, Class C
and Class D Shares, respectively) of the Portfolios. Additional operating
expense information may be found under "The Adviser," "The Administrator and
Co-Administrator" and "The Distributor."
4
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountant, whose June 20, 1995 report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
appearing in the Trust's Annual Financial Report for the fiscal year ended April
30, 1995, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0471 0.0273 0.0305 0.0482 0.0197
Dividends From Net Investment Income (0.0471) (0.0273) (0.0305) (0.0482) (0.0197)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.81% 2.77% 3.09% 4.92% 6.44%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 2 $ 69,786 $ 19,411 $ 4,776 $ 10,361
Ratio Of Operating Expenses To Average
Net Assets 0.38% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 4.87% 2.74% 2.96% 4.94% 6.41%+
Ratio Of Operating Expenses To Average
Net Assets Without Waivers 0.61% 0.65% 0.68% 0.85% 0.87%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 4.64% 2.64% 2.82% 4.64% 6.09%+
Net Investment Income Per Share Without
Waivers $ 0.0448 $ 0.0262 $ 0.0287 $ 0.0447 $ 0.0186
</TABLE>
* The Nations Cash Reserves Liquidity Class Shares commenced operations on
January 9, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
5
<PAGE>
NATIONS TREASURY RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0462 0.0263 0.0288 0.0454 0.0173
Net Realized Gain On Investments -- -- 0.0001 0.0003 --
Total From Investment Operations 0.0462 0.0263 0.0289 0.0457 0.0173
Less Distributions:
Dividends From Net Investment Income (0.0462) (0.0263) (0.0288) (0.0454) (0.0173)
Distributions From Net Realized Gains -- -- (0.0001) (0.0003) --
Total Distributions (0.0462) (0.0263) (0.0289) (0.0457) (0.0173)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.71% 2.67% 2.93% 4.64% 5.79%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 674 $ 14,227 $ 3,369 $ 2,807 $ 2,891
Ratio Of Operating Expenses To Average
Net Assets 0.49% 0.55% 0.55% 0.52% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 4.50% 2.67% 2.89% 4.62% 5.75%+
Ratio Of Operating Expenses To Average
Net Assets Without Waivers 0.79% 0.87% 1.07% 1.32% 1.04%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 4.21% 2.35% 2.37% 3.82% 5.26%+
Net Investment Income Per Share Without
Waivers $ 0.0431 $ 0.0232 $ 0.0213 $ 0.0349 $ 0.0160
</TABLE>
* The Nations Treasury Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS GOVERNMENT RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0453 0.0268 0.0302 0.0461 0.0176
Net Realized Gain On Investments -- -- -- 0.0023 --
Total From Investment Operations 0.0453 0.0268 0.0302 0.0484 0.0176
Less Distributions:
Dividends From Net Investment Income (0.0453) (0.0268) (0.0302) (0.0461) (0.0176)
Distributions From Net Realized Gains -- -- -- (0.0023) --
Total Distributions (0.0453) (0.0268) (0.0302) (0.0484) (0.0176)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.59% 2.71% 3.05% 4.70% 6.04%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 2 $ 259,836 $ 149,252 $ 12,486 $ 5,589
Ratio Of Operating Expenses To Average
Net Assets 0.40% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 4.27% 2.68% 2.71% 4.46% 5.86%+
Ratio Of Operating Expenses To Average
Net Assets Without Waivers 0.62% 0.61% 0.74% 0.86% 0.94%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 4.05% 2.62% 2.52% 4.18% 5.47%+
Net Investment Income Per Share Without
Waivers $ 0.0430 $ 0.0262 $ 0.0274 $ 0.0422 $ 0.0170
</TABLE>
* The Nations Government Reserves Liquidity Class Shares commenced operations
on January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS MUNICIPAL RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0304 0.0188 0.0221 0.0346 0.0478
Dividends From Net Investment Income (0.0304) (0.0188) (0.0221) (0.0346) (0.0478)
Net Asset Value, End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.09% 1.90% 2.24% 3.52% 4.60%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 2,591 $ 13,805 $ 10,766 $ 11,473 $ 8,927
Ratio Of Operating Expenses To Average
Net Assets 0.33% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 3.26% 1.86% 2.21% 3.36% 5.22%+
Ratio Of Operating Expenses To Average
Net Assets Without Waivers And/Or
Expenses Reimbursed 0.69% 0.67% 0.76% 0.99% 0.81%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers
And/Or Expenses Reimbursed 2.89% 1.74% 2.00% 2.92% 4.96%+
Net Investment Income Per Share Without
Waivers And/Or Expenses Reimbursed $ 0.0270 $ 0.0176 $ 0.0192 $ 0.0285 $ 0.0455
</TABLE>
* The Nations Municipal Reserves Liquidity Class Shares commenced operations on
June 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
8
<PAGE>
The Trust
The Capitol Mutual Funds, doing business as Nations Institutional Reserves, is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Fund Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc. and the Trust. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Portfolio is a series of the Trust. Except for
differences between classes of a Portfolio pertaining to distribution and
shareholder servicing arrangements, each share of each Portfolio represents an
equal proportionate interest in that Portfolio. This Prospectus relates to the
Liquidity Class Shares of the Trust's Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves Portfolios.
NBAI is the investment adviser and TradeStreet is the sub-investment adviser for
each Portfolio. Information regarding the Capital Class, Adviser Class and
Market Class Shares of the Portfolios is contained in separate prospectuses that
may be obtained from the Trust's distributor. To obtain additional information
regarding the Portfolios' other classes of shares which may be available to you,
contact Nations Fund at 1-800-626-2275.
Investment Objectives And Policies
Each Portfolio seeks to comply with regulations of the SEC applicable to money
market funds. These regulations impose certain quality, maturity and
diversification restraints on investments by a Portfolio. Under these
regulations, each Portfolio will maintain a dollar-weighted average maturity of
90 days or less and will acquire only eligible securities maturing in 397 days
or less. For further information regarding these restraints, see "Appendix
A -- Portfolio Securities."
NATIONS CASH RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in obligations denominated in U.S. dollars consisting
of: (i) commercial paper; (ii) obligations (including certificates of deposit,
time deposits, and bankers' acceptances) of thrift institutions, U.S. commercial
banks (including foreign branches of such banks), and U.S. and London branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations of issuers of commercial paper whose commercial
paper is eligible for purchase by the Portfolio; (iv) instruments eligible for
acquisition by Nations Government Reserves (see below); and (v) repurchase
agreements and reverse repurchase agreements involving any of the foregoing
obligations or qualified first-tier money market collateral. The Portfolio also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies. The
short-term obligations that may be purchased by the Portfolio include
instruments
9
<PAGE>
issued by trusts or certain partnerships, including pass-through certificates
representing participations in, or debt instruments backed by, the securities
and other assets owned by such trusts or partnerships.
The Portfolio reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than twenty-five percent of the Portfolio's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Portfolio may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements, and cash.
NATIONS TREASURY RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in direct obligations issued by the U.S. Treasury,
separately traded component parts of such obligations transferable through the
Federal book-entry system (known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"), and repurchase agreements and reverse
repurchase agreements involving such obligations. The Portfolio also may invest
in obligations the principal and interest of which are backed by the full faith
and credit of the United States Government, provided that the Portfolio shall,
under normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government. The Portfolio also may invest in securities issued by other
investment companies, consistent with its investment objective and policies.
The dealers selected for the Portfolio must meet criteria established by S&P.
NATIONS GOVERNMENT RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest exclusively in instruments eligible for acquisition by
Nations Treasury Reserves and in obligations issued or guaranteed as to
principal and interest by the agencies and instrumentalities of the U.S.
Government and repurchase agreements and reverse repurchase agreements involving
such obligations.
NATIONS MUNICIPAL RESERVES
The Portfolio's investment objective is to preserve principal value and maintain
a high degree of liquidity while providing current income exempt from Federal
income taxes. There is no assurance that this objective will be met.
The Portfolio will invest in U.S. dollar denominated municipal securities of
issuers located in all fifty states, the District of Columbia, Puerto Rico and
other U.S. territories and possessions. At least 80% of the Portfolio's total
assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
Municipal notes in which the Portfolio may invest consist of general obligation
notes, tax anticipation notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
The Portfolio's investments in any of the notes described above will be limited
to those obligations (i) where both principal and interest are
10
<PAGE>
backed by the full faith and credit of the United States, (ii) which are rated
MIG-1 or VMIG-1 at the time of investment by Moody's Investors Service, Inc.
("Moody's") (iii) which are rated SP-1 at the time of investment by Standard &
Poor's Corporation ("S&P"), or (iv) which, if not rated, are of comparable
quality in the judgment of the Adviser to obligations rated MIG-1, VMIG-1 or
SP-1. The Portfolio also may invest in securities issued by other investment
companies, consistent with its investment objective and policies.
The Portfolio invests in municipal securities which are determined to present
minimal credit risks and which at the time of purchase are considered to be of
"high quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA Limited or its
affiliate IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") or Aa or higher by Moody's, in the case of bonds; rated "A" or
higher by D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain
bonds which are unrated securities (I.E., lacking a short-term rating from the
requisite number of nationally recognized statistical rating organizations);
rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or
"MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1" or
higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six nationally
recognized statistical rating organizations (collectively, "NRSROs"). Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable municipal securities ratings are described in "Appendix
B -- Description of Ratings."
The payment of principal and interest on most securities purchased by the
Portfolio will depend upon the ability of the issuers to meet their obligations.
The District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer." For more
information concerning municipal securities, see "Appendix A -- Municipal
Securities."
The Adviser has discretion to invest up to 20% of the Portfolio's assets in
taxable money market instruments (consisting of obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements) and municipal securities of the type described above, which are
subject to the alternative minimum tax. However, the Portfolio generally intends
to be fully invested in federally tax-exempt securities.
General Investment Policies
For a description of the Portfolios' permitted investments see "Appendix
A -- Portfolio Securities" and for further information about ratings see the
"Appendix B -- Description of Ratings."
Each Portfolio except Nations Municipal Reserves may lend the securities in
which it is invested pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. government or its agencies
or any combination of cash and such securities. The
11
<PAGE>
Portfolio will continue to receive interest on the securities loaned while
simultaneously earning interest on the investment of cash collateral in U.S.
Government securities. Collateral is marked to market daily to provide a level
at least equal to the market value of the securities loaned. There may be risks
of delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans will only be made to borrowers
deemed by the Adviser to be of good standing and when, in the judgment of the
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any guaranty by the U.S. Government, its
agencies or instrumentalities of the securities in which any Portfolio invests
guarantees only the payment of principal and interest on the guaranteed security
and does not guarantee the yield or value of that security or the yield or value
of shares of that Portfolio.
Investment Limitations
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if as a result more than
5% of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply (a) with respect to Nations Cash Reserves,
Nations Treasury Reserves and Nations Government Reserves to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) a Portfolio may
enter into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Portfolio's total assets;
and (c) each Portfolio except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the SAI.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by the Portfolios are subject to limitations imposed under
regulations adopted by the SEC. These regulations generally require money market
funds to acquire only U.S. dollar denominated obligations with a remaining
maturities of 397 days or less and to maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, money market funds may
acquire only obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (or one if it is the only NRSRO rating such
obligation), in the highest short-term rating category or, if
12
<PAGE>
unrated, determined to be of comparable quality (a "first tier security"), or
(ii) rated according to the foregoing criteria in the second highest short-term
rating category or, if unrated, determined to be of comparable quality ("second
tier security"). A security is not considered to be unrated if its issuer has
outstanding obligations of comparable priority and security that have a
short-term rating. The Adviser will determine that an obligation presents
minimal credit risks or that unrated instruments are of comparable quality in
accordance with guidelines established by the Trustees. In addition, investments
by Nations Cash Reserves, Nations Government Reserves and Nations Treasury
Reserves in second tier securities are subject to the further constraints that
(i) no more than 5% of a Portfolio's assets may be invested in such securities
in the aggregate, and (ii) any investment in such securities of one issuer is
limited to the greater of 1% of the Portfolio's total assets or $1 million. In
addition, such Portfolios may only invest up to 25% of their total assets in the
first tier securities of a single issuer for three business days.
Fundamental Policies
The investment objective of each Portfolio and the investment limitations
described above are fundamental policies of each Portfolio. It is also a
fundamental policy of each Portfolio to seek to maintain a constant net asset
value of $1.00 per share. There is no assurance that the Portfolio will be able
to maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Portfolio without the
consent of the holders of a majority of that Portfolio's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the Portfolio's outstanding shares, whichever is less.
The Adviser
NationsBanc Advisors, Inc. serves as investment adviser to the Portfolios. NBAI
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Portfolios. TradeStreet is a wholly owned subsidiary of
NationsBank.
TradeStreet provides trust and investment management services to individuals,
corporations, and institutions, both nationally and internationally.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Portfolio's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Portfolio, makes decisions
with respect to and places orders for that Portfolio'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
13
<PAGE>
case of agency transactions, financial institutions which are affiliated with
NationsBank or which have sold shares in the Portfolio; if the Adviser believes
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
Portfolio may invest in securities of companies with which NationsBank has a
lending relationship.
The Trust 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.
Morrison & Foerster LLP, counsel to the Trust and special counsel to
NationsBank, has advised the Trust and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the Investment Advisory and
Sub-Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent such subsidiaries of NationsBank from continuing
to perform, in whole or in part, such services. If such subsidiaries of
NationsBank were prohibited from performing any such services, it is expected
that the Board of Trustees of the Trust would recommend to each Portfolio's
shareholders that they approve new advisory and/or sub-advisory agreements with
another entity or entities qualified to perform such services.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Portfolio. For the services provided and the expenses assumed pursuant to the
Sub-Advisory Agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of 0.033% of the average daily net
assets of each Portfolio.
NBAI, TradeStreet, the administrator and the co-administrator of the Portfolios
have voluntarily agreed to waive their fees (and reimburse the Portfolios for
certain expenses) in order to limit the total annualized operating expenses of
the Liquidity Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing
fees) of the Portfolios (as a percentage of average daily net assets) to 0.20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated. For the fiscal year ended April 30, 1995, the Portfolios paid
NationsBank under a prior Advisory Agreement an advisory fee, after waivers, at
the indicated rate of the Portfolios' average net assets: Nations Cash
Reserves -- 0.11%; Nations Treasury Reserves -- 0.04%; Nations Government
Reserves -- 0.13%; and Nations Municipal Reserves -- 0.07%.
14
<PAGE>
The Administrator and Co-Administrator
Stephens Inc. ("Stephens"), with principal offices at 111 Center Street, Little
Rock, Arkansas 72201, serves as the administrator of the Trust pursuant to an
Administration Agreement. Pursuant to the terms of the Administration Agreement,
Stephens provides various administrative and corporate secretarial services to
the Portfolios, 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 Portfolios.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Portfolios pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Portfolios,
including performing calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain general accounting records for the Portfolios. 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 Portfolio's average daily net assets.
For the fiscal year ended April 30, 1995, the Portfolios paid their
administrator a fee, after waivers, at the indicated rate of average net assets:
Nations Cash Reserves -- 0.06%; Nations Treasury Reserves -- 0.06%; Nations
Government Reserves -- 0.06%; and Nations Municipal Reserves -- 0.06%.
In addition, the Trust pays its other operating expenses, including audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial and transfer agency services and
registering shares under Federal and state securities laws and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
The Distributor
Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer with
principal offices at 111 Center Street, Little Rock, Arkansas 72201. The Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Portfolios.
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN: The distribution agreement and the
distribution plan adopted by the Liquidity Class Shareholders (the "Plan")
provide that the Liquidity Class Shares of the Portfolios may reimburse Stephens
for certain expenses incurred by Stephens in connection with the distribution of
Liquidity Class Shares of the Portfolios, including (i) the costs of printing
prospectuses and other similar materials for persons other than current
Shareholders, (ii) the cost of complying with Federal and state laws relating to
the distribution of Liquidity Class Shares, (iii) costs of advertising relating
to Liquidity
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Class Shares, and (iv) expenses incurred in connection with the promotion and
sale of Liquidity Class Shares. Under the Plan, the Trust may reimburse Stephens
only for actual expenses incurred up to 0.30% of the average daily net assets of
the Liquidity Class Shares. Currently, the Trust is not reimbursing Stephens for
any portion of such expenses. Unreimbursed expenses incurred by Stephens in a
given year may not be recovered by Stephens in subsequent years.
In addition to the reimbursement fee, the Plan permits the Trust to pay Stephens
an annual fee of up to 0.30% of the average daily net assets of the Liquidity
Class Shares of Nations Cash Reserves, Nations Government Reserves, and Nations
Municipal Reserves and 0.35% of the average daily net assets of the Liquidity
Class Shares of Nations Treasury Reserves which Stephens can use to compensate
certain financial institutions that provide administrative and/or distribution
services to Liquidity Class Shareholders. Currently, the Trust is not
compensating Stephens for providing such services. Certain state securities laws
may require those financial institutions providing such distribution services to
register as dealers pursuant to state law.
SHAREHOLDER SERVICING PLAN: The shareholder servicing plan ("Servicing Plan")
permits each Portfolio to compensate certain banks, broker/dealers or other
financial institutions that have entered into shareholder servicing agreements
("Servicing Agents") for certain shareholder support services that are provided
by the Servicing Agents to their customers that own Liquidity Class Shares
("Customers"). Payments under the Servicing Plan will be calculated daily and
paid monthly at a rate set from time to time by the Board of Trustees provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of a Portfolio's Liquidity Class Shares. The shareholder services provided by
Servicing Agents may include general shareholder liaison services; processing
purchase, exchange and redemption requests from Customers and placing orders
with Stephens or the Transfer Agent; processing dividend and distribution
payments from a Portfolio on behalf of Customers; providing sales information
periodically to Customers, including information showing their positions in
Liquidity Class Shares; providing sub-accounting with respect to Liquidity Class
Shares beneficially owned by Customers or the information necessary for sub-
accounting; responding to inquiries from Customers concerning their investment
in Liquidity Class Shares; arranging for bank wires; and providing such other
similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Portfolios' Servicing
Plan described above and the terms of the shareholder servicing agreements. See
the SAI for more details on the Servicing Plan.
In addition to Liquidity Class Shares, the Portfolios offer Capital Class,
Adviser Class and Market Class Shares. Capital Class Shares of the Portfolios,
which are not subject to a distribution or shareholder servicing fee, are
offered to NationsBank, its affiliates and correspondents for the investment of
funds for which they act in a fiduciary capacity and which meet the $1,000,000
minimum initial investment requirement. Adviser Class Shares are offered to
institutional investors having a corporate cash management arrangement with a
bank, broker/dealer or other financial institution that has entered into a
shareholder servicing agreement with the Trust ("Servicing Agents") and which
meet the $100,000 minimum initial investment requirement. Market Class Shares
are offered through Servicing Agents to individuals and institutions which meet
the $250,000 minimum initial investment for such shares. Adviser Class and
Market Class Shares bear
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aggregate distribution and shareholder servicing fees of up to 0.45% of the
class's average daily net assets. A salesperson and any other person or entity
entitled to receive compensation for selling or servicing Portfolio shares may
receive different compensation with respect to one particular class of shares
over another in a Portfolio.
Trustees Of The Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
Purchase, Redemption and Exchange
Of Shares
PURCHASES: Liquidity Class Shares are offered to institutional investors,
including NationsBank, its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity. The minimum initial investment in Liquidity Class Shares is $500,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day. 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 (as defined below). A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Municipal Reserves). A purchase order received
after such time will not be accepted; notice thereof will be given to the
institution placing the order and any funds received will be returned promptly
to the sending institution. If federal funds are not available by the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time), the order
will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by Stephens or the Transfer Agent.
The net asset value of shares is calculated as of 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. The assets of the Portfolios are valued based upon the amortized
cost method. Although the Portfolios seek to maintain a net asset value per
share of $1.00, there can be no assurance that the net asset value per share
will not vary.
REDEMPTIONS: Redemption orders must be received on a Business Day before 3:00
p.m., Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), and payment will normally be wired the same day. The Trust reserves
the right to wire redemption proceeds within three Business Days after receiving
a redemption order if, in the judgment of the Adviser, an earlier payment could
adversely
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impact a Portfolio. Redemption orders will not be accepted by Stephens or the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective.
Due to the high cost of maintaining Portfolio accounts with small balances, the
Trust reserves the right to redeem an investor's account and send the proceeds
to such investor if the balance falls below $250,000 because of a redemption.
However, investors will be given 30 days' notice to make an additional
investment to increase their account balance to $250,000 or more.
EXCHANGES: The exchange feature enables a Shareholder of Liquidity Class Shares
of a Portfolio to acquire Liquidity Class Shares of another Portfolio when that
Shareholder believes that a shift between Portfolios is an appropriate
investment decision. An exchange of Liquidity Class Shares for Liquidity Class
Shares of another portfolio is made on the basis of the next calculated net
asset value per share of each Portfolio after the exchange order is received.
The Portfolio and each of the other funds of Nations Fund may limit the number
of times this exchange feature may be exercised by a Shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and Shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
Shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the Shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. If a Shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent
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instructions. Nations Fund requires a form of personal identification prior to
acting upon instructions received by telephone and provides written confirmation
to Shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Voting Rights
Each share held entitles the Shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a special
meeting called upon written request of Shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
Dividends
The net income of each Portfolio is determined and declared on each Business Day
as a dividend to Shareholders of record as of 3:00 p.m., Eastern time, (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on that day.
Dividends are paid by each Portfolio in additional shares of the same class,
unless the Shareholder has elected to take such payment in cash, on the first
Business Day of each month. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
Liquidity Class, Adviser Class and Market Class.
Performance
From time to time the Portfolios may advertise their "current yield" and
"effective compound yield." SUCH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio
refers to the income generated by an investment in the Portfolio over a stated
seven-day period. 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 the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
Nations Municipal Reserves also may advertise its "tax-equivalent yield," which
is calculated by determining the rate of return that would have to be achieved
on a fully taxable investment to produce the after-tax equivalent of the
Portfo-
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lio's yield, assuming certain tax brackets for Shareholders.
The yield of the Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Portfolio will actually yield in the future. Performance quotations will be
computed separately for each class of a Portfolio's shares. Because of
differences in the fees and expenses borne by Liquidity Class, Adviser Class and
Market Class Shares, the net yield on such shares can be expected, at any given
time, to be lower than the net yield on Capital Class Shares. Each Portfolio's
annual report contains additional performance information and is available on
request without charge from Stephens.
In addition, a Portfolio from time to time may compare its performance to that
of other mutual funds tracked by mutual fund rating services, of broad groups of
comparable mutual funds or of unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
Taxes
Each Portfolio is treated as a separate entity for Federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As long as a Portfolio qualifies
for this special tax treatment, it will be relieved of Federal income tax on
that part of its net investment income (including, for this purpose, net
short-term capital gain) and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) that is distributed to
Shareholders.
Each Portfolio intends to distribute substantially all of its net investment
income (including, for this purpose, net short-term capital gain) to
Shareholders. Dividends declared by Nations Cash Reserves, Nations Government
Reserves and Nations Treasury Reserves from net investment income will be
taxable to Shareholders as ordinary income whether received in cash or in
additional shares and will not qualify for the corporate dividends-received
deduction. Nations Municipal Reserves may pay "exempt-interest dividends" to its
Shareholders if, at the close of each quarter of its taxable year, at least 50%
of the value of such Portfolio's assets consists of obligations the interest on
which is excludable from gross income. Exempt-interest dividends constitute the
portion of the aggregate dividends, as designated by the Portfolio, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt interest dividends are excludable from a Shareholder's gross income for
Federal income tax purposes, but may have certain collateral Federal income tax
consequences, as described in the SAI. Any dividends attributable to Nations
Municipal Reserve's taxable income will be taxable to shareholders as ordinary
income whether received in cash or in additional shares to the extent of the
Portfolio's earnings and profits and will not qualify for the corporate
dividends-received deduction.
Any net capital gain will be distributed at least annually and will be taxed to
Shareholders as long-term capital gain, regardless of how long a Shareholder has
held shares. The Portfolios will make annual reports to Shareholders of the
Federal income tax status of all distributions.
Ordinarily, Shareholders will include in income all dividends declared by a
Portfolio in the year those dividends are paid. However, dividends
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declared by a Portfolio in October, November or December of any year and payable
to Shareholders of record on a date in any of those months will be deemed to
have been paid by the Portfolio and received by the Shareholders on December
31st, if paid by the Portfolio during the following January.
Income received on direct U.S. Government obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Government obligations normally is not exempt from state taxation. Nations Cash
Reserves, Nations Government Reserves and Nations Treasury Reserves will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisors to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Federal law requires the Trust to withhold 31% from any dividends (other than
exempt-interest dividends) paid by the Trust and/or redemptions (including
exchange redemptions) that occur in certain Shareholder accounts if the
Shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified the Trust 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 a Portfolio to withhold 30% or
the applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations. Further tax
information is contained in the SAI.
Independent Accountant, Custodian and
Transfer Agent
Price Waterhouse LLP serves as the independent accountant of the Trust.
NationsBank of Texas, N.A., serves as each Portfolio's custodian (the
"Custodian"). The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Portfolio, (ii) $10.00 per repurchase
collateral transaction by the Portfolios, and (iii) $15.00 per purchase, sale
and maturity transaction involving the Portfolios.
TSSG serves as transfer agent (the "Transfer Agent") for each Portfolio's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
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Appendix A -- Portfolio Securities
The following is a description of the permitted investments for the Portfolios:
U.S. TREASURY OBLIGATIONS -- bills, notes, and bonds issued by the U.S. Treasury
and STRIPS. STRIPS are sold as zero coupon securities, which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, STRIPS may be subject to greater interest rate volatility than
interest paying U.S. Treasury Obligations.
U.S. GOVERNMENT AGENCY SECURITIES -- certain Federal agencies, such as the
Government National Mortgage Association, have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of certain of these agencies, while not direct obligations
of the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association or "FNMA").
BANKERS' ACCEPTANCES -- a bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- a negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities; therefore, the Portfolio will not invest more than 10% of
its assets in such time deposits.
COMMERCIAL PAPER -- the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
GUARANTEED INVESTMENT CONTRACTS
-- Guaranteed investment contracts ("GICs") are investment instruments issued
by highly rated insurance companies. Pursuant to such contracts, a Portfolio may
make cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Portfolio guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by NationsBank. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Portfolio may not receive the principal amount of a GIC
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from the insurance company on seven days' notice or less, at which point the GIC
would be considered an illiquid investment. Therefore, GICs are generally
considered to be illiquid investments.
OTHER INVESTMENT COMPANIES -- A Portfolio may invest in securities issued by
other investment companies to the extent such investments are consistent with
the Portfolio's investment objective and policies and permissible under the
Investment Company Act of 1940. As a shareholder of another investment company,
a Portfolio 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 Portfolio bears
directly in connection with its own operations.
VARIABLE- AND FLOATING-RATE INSTRUMENTS -- certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Portfolios will
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered to be illiquid if there is no secondary market for such
security.
REPURCHASE AGREEMENTS -- agreements by which a person obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Portfolio may enter into repurchase
agreements jointly with other Portfolios and with investment portfolios of the
Nations Fund Family of mutual funds.
REVERSE REPURCHASE AGREEMENTS -- When a Portfolio 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 Portfolio 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
advantageous only if the interest cost to the Portfolio of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
At the time a Portfolio 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 Portfolios are obligated to repurchase under the agreement may
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decline below the repurchase price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
Portfolios' 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 Portfolios' obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
the Portfolios 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 Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by a Portfolio 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 Portfolio, a Portfolio 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 Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss. Some of these instruments may
be unrated, but unrated instruments purchased by a Portfolio will be determined
by the Adviser to be of comparable quality at the time of purchase to
instruments rated "high quality" by any major rating service. An issuer's
obligation to pay the principal of the note may be backed by an unconditional
bank letter or line of credit, guarantee, or commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Portfolio may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. Each Portfolio will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its total
assets unless the Adviser deter-
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mines that the municipal lease obligations are liquid pursuant to guidelines
established by the Portfolios' Board of Trustees. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Portfolios expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Portfolio's
limitation on the purchase of illiquid securities.
In addition, certain of the Portfolios 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
Portfolio's option specified municipal securities at a specified price. A
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and without intending to exercise its rights thereunder for trading
purposes.
Each Portfolio may invest in short-term securities, in commitments to purchase
such securities on a "when-issued" basis, and reserves the right to engage in
"put" transactions on a daily, weekly or monthly basis. Securities purchased on
a "when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Portfolio before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Portfolios will only commit to purchase a security on a when-issued
basis with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Portfolio to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Portfolio. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Portfolio to meet redemptions and remain as fully invested as
possible in municipal securities. The Portfolios will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board. Nations Municipal Reserves
may invest more than 40% of its portfolio in puts or other securities guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Portfolio and affect its
share price.
Although each Portfolio does not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities that
are payable solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Portfolio's total assets are invested in municipal securities that are
payable from the revenues of similar projects, the Portfolio 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.
SECURITIES OF FOREIGN ISSUERS -- Foreign investments involve risks that are
different from investments in securities of U.S. issuers. These risks may
include future unfavorable
25
<PAGE>
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest. Additionally,
there may be less public information available about foreign issuers. Foreign
branches of foreign banks are not regulated by U.S. banking authorities and
generally are not bound by accounting, auditing and financial reporting
standards comparable to U.S. banks. Nations Cash Reserves may invest in
obligations of foreign branches of U.S. banks and U.S. and London branches of
foreign banks.
SHORT-TERM TRUST OBLIGATIONS -- Nations Cash Reserves may invest in short-term
obligations issued by special purpose trust established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by the
trust, either from the underlying securities owned by the trust or pursuant to
other arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Portfolio must satisfy the quality and maturity requirements
generally applicable to the Portfolio pursuant to Rule 2a-7 under the 1940 Act.
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 rating 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
26
<PAGE>
there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa. 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 groups which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1.
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 rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
To provide more detailed indications of credit quality, the AA rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
27
<PAGE>
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term 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
28
<PAGE>
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 two 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.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the two highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature, a rating
of A1+ is assigned.
A1 -- Obligations supported by the highest capacity for timely repayment.
29
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as
The Capitol Mutual Funds) (the "Trust") is an
open-end management investment company which seeks
to provide a convenient and economical means of
investing in one or more professionally managed
portfolios. The Trust's portfolios offer multiple
classes of shares; this Prospectus relates to the
Market Class Shares of the following diversified
money market portfolios (each, a "Portfolio"):
NATIONS CASH RESERVES, NATIONS TREASURY RESERVES,
NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL
RESERVES.
The Trust's Market Class Shares are offered to
institutional investors that meet the $250,000
minimum initial investment requirement and to
NationsBank, N.A., ("NationsBank"), its affiliates
and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary,
agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH PORTFOLIO TO USE
ITS BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE. AN INVESTMENT IN A
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT EACH
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated August 31, 1996 has been
filed with the Securities and Exchange Commission
("SEC") and is available without charge by writing
or calling the Trust at the address or telephone
number indicated in the column to the right. The
SAI is incorporated into this Prospectus by
reference. NationsBanc Advisors, Inc. ("NBAI") is
the investment adviser to the Portfolios.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Portfolios. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE PORTFOLIOS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO THE TRUST, FOR WHICH THEY
ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE
TRUST.
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 Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
MARKET CLASS SHARES
AUGUST 31, 1996
For purchase, redemption
and
performance information
call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
Expenses Summary 3
Financial Highlights 5
The Trust 5
Investment Objectives And Policies 5
General Investment Policies 8
Investment Limitations 8
Fundamental Policies 9
The Adviser 9
The Administrator and Co-Administrator 11
The Distributor 11
Distribution Plan 12
Shareholder Servicing Plan 13
Trustees of the Trust 13
Purchase, Redemption and Exchange of Shares 14
Voting Rights 15
Dividends 16
Performance 16
Taxes 17
Independent Accountant, Custodian and Transfer
Agent 18
Appendix A -- Portfolio Securities 18
Appendix B -- Description of Ratings 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE 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 THE TRUST
OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE TRUST OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the
Portfolios. The following table summarizes operating expenses for Market Class
Shares of the Portfolios. There are no transaction fees imposed upon the
purchase, redemption or exchange of shares. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in Market Class Shares
of the Portfolios over specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
Advisory Fees (Absent Fee Waivers)1 .04% .06% .05% .05%
Rule 12b-1 Fees (Absent Fee Waivers)1 .10% .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (Absent Fee Waivers)1 .16% .14% .15% .15%
Total Operating Expenses (Absent Fee Waivers)1 .55% .55% .55% .55%
</TABLE>
1 The adviser, sub-investment adviser, administrator and co-administrator of the
Trust have agreed voluntarily to waive a portion or all of their fees and to
reimburse certain expenses of the Portfolios, and the advisory fees and other
expenses shown reflect the voluntary waivers and/or reimbursements. The
adviser, sub-investment adviser, administrator and co-administrator of the
Trust each reserves the right to terminate its waiver or reimbursement at any
time in its sole discretion. Absent these fee waivers and expense
reimbursements, the Advisory Fees, Rule 12b-1 Fees, Other Expenses and Total
Operating Expenses for Nations Cash Reserves would be .30%, .20%, .20% and
.95% of average net assets, respectively; for Nations Treasury Reserves would
be .30%, .20%, .18% and .93% of average net assets, respectively; for Nations
Government Reserves would be .30%, .20%, .19% and .94% of average net assets,
respectively; and for Nations Municipal Reserves would be .30%, .20%, .19% and
.94% of average net assets, respectively. Additional operating expense
information may be found under "The Adviser," "The Administrator and
Co-Administrator" and "The Distributor."
3
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Market
Class Shares of the indicated Portfolio assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years
Nations Cash Reserves $6 $18
Nations Treasury Reserves $6 $18
Nations Government Reserves $6 $18
Nations Municipal Reserves $6 $18
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. Certain figures contained in the above tables are based on amounts
incurred during each Portfolio's most recent fiscal year and have been adjusted
as necessary to reflect current service provider fees and/or reimbursements. If
current fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. The information set forth in the
foregoing table and examples relates only to the Market Class Shares. The Trust
also offers the Capital Class, Liquidity Class and Adviser Class Shares
(formerly Class A, Class B and Class C Shares, respectively) of the Portfolios.
The "Other Expenses" figures contained in the above table are based on estimated
amounts for the Portfolios' current fiscal year. There is no assurance that any
fee waivers and reimbursements will continue at their present level beyond the
current fiscal year. Long-term shareholders in a Portfolio 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 Portfolios'
operating expenses, see "The Adviser," "The Administrator and Co-Administrator"
and "The Distributor."
4
<PAGE>
Financial Highlights
Financial information is not provided in connection with Market Class Shares of
the Portfolios because such shares were not offered during the Trust's most
recent fiscal year. Financial information in connection with Capital Class and
Liquidity Class Shares of the Portfolios is incorporated by reference in the
SAI, which is available upon request. Price Waterhouse LLP is the independent
accountant to the Trust. Shareholders will receive unaudited semi-annual reports
describing the Portfolios' investment operations and annual financial statements
audited by the Trust's independent accountant.
The Trust
The Capitol Mutual Funds, doing business as Nations Institutional Reserves, is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Fund Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc. and the Trust. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Portfolio is a series of the Trust. Except for
differences between classes of a Portfolio pertaining to distribution and
shareholder servicing arrangements, each share of each Portfolio represents an
equal proportionate interest in that Portfolio. This Prospectus relates to the
Market Class Shares of the Trust's Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves Portfolios.
NBAI is the investment adviser and TradeStreet is the sub-investment adviser for
each Portfolio. Information regarding the Capital Class, Liquidity Class and
Adviser Class Shares of the Portfolios is contained in separate prospectuses
that may be obtained from the Trust's distributor. To obtain additional
information regarding the Portfolios' other classes of shares which may be
available to you, contact Nations Fund at 1-800-626-2275.
Investment Objectives And Policies
Each Portfolio seeks to comply with regulations of the SEC applicable to money
market funds. These regulations impose certain quality, maturity and
diversification restraints on investments by a Portfolio. Under these
regulations, each Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will acquire only eligible securities maturing
in 397 days or less. For further information regarding these restraints, see
"Appendix A -- Portfolio Securities."
NATIONS CASH RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in obligations denominated in U.S. dollars consisting
of: (i) commercial paper; (ii) obligations (including certificates of deposit,
time deposits, and bankers'
accept-
5
<PAGE>
ances) of thrift institutions, U.S. commercial banks (including foreign branches
of such banks), and U.S. and London branches of foreign banks, provided that
such institutions (or, in the case of a branch, the parent institution) have
total assets of $1 billion or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations of
issuers of commercial paper whose commercial paper is eligible for purchase by
the Portfolio; (iv) instruments eligible for acquisition by Nations Government
Reserves (see below); and (v) repurchase agreements and reverse repurchase
agreements involving any of the foregoing obligations or qualified first-tier
money market collateral. The Portfolio also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Portfolio include instruments issued by trusts or certain
partnerships, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
trusts or partnerships.
The Portfolio reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than twenty-five percent of the Portfolio's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Portfolio may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements and cash.
NATIONS TREASURY RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in direct obligations issued by the U.S. Treasury,
separately traded component parts of such obligations transferable through the
federal book-entry system (known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"), and repurchase agreements and reverse
repurchase agreements involving such obligations. The Portfolio also may invest
in obligations the principal and interest of which are backed by the full faith
and credit of the United States Government, provided that the Portfolio shall,
under normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government. The Portfolio also may invest in securities issued by other
investment companies, consistent with its investment objective and policies.
The dealers selected for the Portfolio must meet criteria established by S&P.
NATIONS GOVERNMENT RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest exclusively in instruments eligible for acquisition by
Nations Treasury Reserves and in obligations issued or guaranteed as to
principal and interest by the agencies and instrumentalities of the U.S.
Government and repurchase agreements and reverse repurchase agreements involving
such obligations.
NATIONS MUNICIPAL RESERVES
The Portfolio's investment objective is to preserve principal value and maintain
a high degree of liquidity while providing current income
6
<PAGE>
exempt from Federal income taxes. There is no assurance that this objective will
be met.
The Portfolio will invest in U.S. dollar denominated municipal securities of
issuers located in all fifty states, the District of Columbia, Puerto Rico and
other U.S. territories and possessions. At least 80% of the Portfolio's total
assets will be invested in securities the interest on which is exempt from
Federal income tax, based on opinions from bond counsel for the issuers.
Municipal notes in which the Portfolio may invest consist of general obligation
notes, tax anticipation notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
The Portfolio's investments in any of the notes described above will be limited
to those obligations (i) where both principal and interest are backed by the
full faith and credit of the United States, (ii) which are rated MIG-1 or VMIG-1
at the time of investment by Moody's Investors Service, Inc. ("Moody's"), (iii)
which are rated SP-1 at the time of investment by Standard & Poor's Corporation
("S&P"), or (iv) which, if not rated, are of comparable quality in the judgment
of the Adviser to obligations rated MIG-1, VMIG-1 or SP-1. The Portfolio also
may invest in securities issued by other investment companies, consistent with
its investment objective and policies.
The Portfolio invests in municipal securities which are determined to present
minimal credit risks and which at the time of purchase are considered to be of
"high quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA Limited or its
affiliate IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") or Aa or higher by Moody's, in the case of bonds; rated "A" or
higher by D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain
bonds which are unrated securities (I.E., lacking a short-term rating from the
requisite number of nationally recognized statistical rating organizations);
rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or
"MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1" or
higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six nationally
recognized statistical rating organizations (collectively, "NRSROs"). Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable municipal securities ratings are described in "Appendix
B -- Description of Ratings."
The payment of principal and interest on most securities purchased by the
Portfolio will depend upon the ability of the issuers to meet their obligations.
The District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer." For more
information concerning municipal securities, see "Appendix A -- Municipal
Securities."
The Adviser has discretion to invest up to 20% of the Portfolio's assets in
taxable money market instruments (consisting of obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements) and municipal securities of the type described above, which are
subject to the alternative minimum tax. However, the Portfolio generally intends
to be fully invested in federally tax-exempt securities.
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General Investment Policies
For a description of the Portfolios' permitted investments see "Appendix
A -- Portfolio Securities" and for further information about ratings see the
"Appendix B -- Description of Ratings."
Each Portfolio except Nations Municipal Reserves may lend the securities in
which it is invested pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. Government or its agencies
or any combination of cash and such securities. The Portfolio will continue to
receive interest on the securities loaned while simultaneously earning interest
on the investment of cash collateral in U.S. Government securities. Collateral
is marked to market daily to provide a level at least equal to the market value
of the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Portfolio invests guarantees only the payment of
principal and interest on the guaranteed security and does not guarantee the
yield or value of that security or the yield or value of shares of that
Portfolio.
Investment Limitations
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if as a result more than
5% of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply (a) with respect to Nations Cash Reserves,
Nations Treasury Reserves and Nations Government Reserves, to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) a Portfolio may
enter into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Portfolio's total assets;
and (c) each Portfolio except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the SAI.
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RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by the Portfolios are subject to limitations imposed under
regulations adopted by the SEC. These regulations generally require money market
funds to acquire only U.S. dollar denominated obligations with remaining
maturities of 397 days or less and to maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, money market funds may
acquire only obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (or one if it is the only NRSRO rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Adviser will determine that an obligation presents minimal credit risks or
that unrated instruments are of comparable quality in accordance with guidelines
established by the Trustees. In addition, investments by Nations Cash Reserves,
Nations Government Reserves and Nations Treasury Reserves in second tier
securities are subject to the further constraints that (i) no more than 5% of a
Portfolio's assets may be invested in such securities in the aggregate, and (ii)
any investment in such securities of one issuer is limited to the greater of 1%
of the Portfolio's total assets or $1 million. In addition, such Portfolios may
only invest up to 25% of their total assets in the first tier securities of a
single issuer for three business days.
Fundamental Policies
The investment objective of each Portfolio and the investment limitations
described above are fundamental policies of each Portfolio. It is also a
fundamental policy of each Portfolio to seek to maintain a constant net asset
value of $1.00 per share. There is no assurance that the Portfolios will be able
to maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Portfolio without the
consent of the holders of a majority of that Portfolio's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the Portfolio's outstanding shares, whichever is less.
The Adviser
NationsBanc Advisors, Inc. serves as investment adviser to the Portfolios. NBAI
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of Nationsbank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates Inc., with principal offices at One
NationsBank Plaza,
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Charlotte, North Carolina 28255, serves as
sub-investment adviser to the Portfolios. TradeStreet is a wholly owned
subsidiary of NationsBank.
TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Portfolio's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Portfolio, makes decisions
with respect to and places orders for that Portfolio'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 NationsBank or
which have sold shares in the Portfolio, if the Adviser believes 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 Portfolio may
invest in securities of companies with which NationsBank has a lending
relationship.
The Trust 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.
Morrison & Foerster LLP, counsel to the Trust and special counsel to
NationsBank, has advised the Trust and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Portfolio. For services provided and the expenses assumed pursuant to the
Sub-Advisory Agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of 0.033% of the average daily net
assets of each Portfolio.
NBAI, TradeStreet and the administrator and the co-administrator of the
Portfolios have voluntarily agreed to waive their fees proportionately (and
reimburse the Portfolios for certain expenses) in order to limit the total
annualized operating expenses of Market Class Shares (exclusive of Rule 12b-1
fees and Shareholder Servicing Fees) of the Portfolios (as a percentage of
average daily net assets) to 0.20%. NBAI, TradeStreet, the administrator and the
co-administrator each reserves the right, in its sole discretion, to terminate
this voluntary fee waiver at any time. Shareholders will be notified in advance
if and when the waiver is terminated. For the fiscal year ended April 30, 1995,
the
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Portfolios paid NationsBank under a prior Advisory Agreement, advisory fees,
after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- 0.11%; Nations Treasury Reserves -- 0.04%; Nations Government
Reserves -- 0.13%; and Nations Municipal Reserves -- 0.07%.
The Administrator and Co-Administrator
Stephens Inc. ("Stephens"), with principal offices at 111 Center Street, Little
Rock, Arkansas 72201, serves as the administrator of the Trust pursuant to an
Administration Agreement. Pursuant to the terms of the Administration Agreement,
Stephens provides various administrative and corporate secretarial services to
the Portfolios, 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 Portfolios.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Portfolios pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Portfolios,
including performing calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain general accounting records for the Portfolios. 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 Portfolio's average daily net assets.
For the fiscal year ended April 30, 1995, the Portfolios paid their
administrator a fee, after waivers, at the indicated rate of average net assets:
Nations Cash Reserves -- 0.06%; Nations Treasury Reserves -- 0.06%; Nations
Government Reserves -- 0.06%; and Nations Municipal Reserves -- 0.06%.
In addition, the Trust pays its other operating expenses, including audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial and transfer agency services and
registering shares under Federal and state securities laws and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
The Distributor
Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer with
principal offices at 111 Center Street, Little Rock, Arkansas 72201. The Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Portfolios.
In addition to Market Class Shares, the Portfolios also offer Capital Class,
Liquidity Class and Adviser Class Shares. Capital Class Shares, which do not
bear distribution or shareholder
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servicing fees, are offered only to NationsBank, its affiliates and
correspondents, for the investment of funds for which they act in a fiduciary
capacity and which meet the $1,000,000 minimum initial investment requirement.
Liquidity Class Shares are offered to institutional investors which meet the
$500,000 minimum initial investment requirement and to NationsBank and its
affiliates and correspondents, for the investment of their own funds or funds
for which they act in a fiduciary, agency or custodial capacity. Liquidity Class
Shares of the Portfolios bear aggregate distribution and shareholder servicing
fees of up to 0.85% of the class's average daily net assets. Adviser Class
Shares are offered to institutional investors having a corporate cash management
arrangement with a bank, broker/dealer or other financial institution that has
entered into a shareholder servicing agreement with the Trust and that meet the
$100,000 minimum initial investment requirement. Adviser Class Shares also bear
shareholder servicing fees of up to 0.25% of the class's average net assets. A
salesperson and any other person or entity entitled to receive compensation for
selling or servicing Portfolio shares may receive different compensation with
respect to one particular class of shares over another in a Portfolio.
Distribution Plan
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan (the "Plan") with respect to the Market Class Shares of each
Portfolio. Pursuant to the Plan, each Portfolio may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Portfolio's Market Class Shares. Payments under the Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trust's Board of Trustees, provided that the annual rate may not exceed .20%
of the average daily net asset value of each Portfolio's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Portfolio
shall be obligated to make any payments under the Plan that exceed the maximum
amounts payable under Article III, Section 26 of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. Certain state securities
laws may require those financial institutions providing distribution services to
register as dealers pursuant to state law.
The fees payable under the Plan are used primarily to compensate or reimburse
Stephens for distribution services provided by it, and related expenses
incurred, in connection with Market Class Shares, including payments by Stephens
to compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Sales Support Agreements with Stephens ("Selling
Agents"), for sales support services provided, and related expenses incurred, by
such Selling Agents. Payments under the Plan may be made with respect to: (i)
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by Stephens or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively; (ii)
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of Stephens or Selling Agents, attributable
to distribution or sales support activities, respectively; (iv) opportunity
costs relating to the foregoing (which may be calculated as a carrying charge on
Stephens' or Selling Agent's unreimbursed expenses incurred in connection with
distribution or sales support activities, respectively); and (v) any other costs
and expenses relating to distribution or sales support activities. The overhead
and other office expenses referenced above
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may include, without limitation, (i) the expenses of operating Stephens' or
Selling Agents' offices in connection with the sale of Portfolio shares,
including lease costs, the salaries and employee benefit costs of
administrative, operations and support personnel, utility costs, communication
costs and the costs of stationery and supplies, (ii) the costs of client sales
seminars and travel related to distribution and sales support activities, and
(iii) other expenses relating to distribution and sales support activities.
Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Market Class Shares of the Portfolios. Pursuant to the Servicing
Plan, the Trust, on behalf of each Portfolio, may enter into shareholder
servicing agreements ("Servicing Agreements") with banks, broker/dealers and
other financial institutions, including certain affiliates of NationsBank
("Servicing Agents"). Under the Servicing Agreements, the Servicing Agents will
provide various shareholder support services to their customers that are the
owners of Market Class Shares, including 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 Portfolios on behalf of customers; providing information
periodically to customers showing their position in Market Class Shares;
arranging for bank wires; and providing such other similar services as may
reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Portfolios' Market Class Shares.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Market Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with the
investment of their assets in Market Class Shares. Customers should read this
Prospectus in light of the terms governing their accounts with their Servicing
Agents.
The Trust 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.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
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Purchase, Redemption and Exchange
of Shares
PURCHASES: Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Market Class Shares is $250,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day. 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 (as defined below). A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Municipal Reserves). A purchase order received
after such time will not be accepted; notice thereof will be given to the
institution placing the order and any funds received will be returned promptly
to the sending institution. If federal funds are not available by the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time), the order
will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by Stephens or the Transfer Agent.
The net asset value of shares is calculated as of 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to the Nations Municipal Reserves), on each
Business Day. The assets of the Portfolios are valued based upon the amortized
cost method. Although the Portfolios seek to maintain a net asset value per
share of $1.00, there can be no assurance that the net asset value per share
will not vary.
REDEMPTIONS: Redemption orders must be received on a Business Day before 3:00
p.m., Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), and payment will normally be wired the same day. The Trust reserves
the right to wire redemption proceeds within three Business Days after receiving
a redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Portfolio. Redemption orders will not be accepted by Stephens
or the Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective.
EXCHANGES: The exchange feature enables a Shareholder of Market Class Shares of
a Portfolio to acquire Market Class Shares of another Portfolio when that
Shareholder believes that a shift between Portfolios is an appropriate
investment decision. An exchange of Market Class Shares for Market Class Shares
of another Portfolio is made on the basis of the next calculated net asset value
per share of each Portfolio after the exchange order is received.
The Portfolio and each of the other funds of Nations Fund may limit the number
of times this exchange feature may be exercised by a
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Shareholder within a specified period of time. Also, the exchange feature may be
terminated or revised at any time by Nations Fund upon such notice as may be
required by applicable regulatory agencies (presently sixty days for termination
or material revision), provided that the exchange feature may be terminated or
materially revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and Shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
Shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the Shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. If a Shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by using the telephone transaction feature,
you may be giving up a measure of security that you may have if you were to
authorize written requests only. You may bear the risk of any resulting losses
from a telephone transaction. Nations Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and if Nations
Fund and its service providers fail to employ such measures, they may be liable
for any losses due to unauthorized or fraudulent instructions. Nations Fund
requires a form of personal identification prior to acting upon instructions
received by telephone and provides written confirmation to Shareholders of each
telephone share transaction. In addition, Nations Fund reserves the right to
record all telephone conversations.
Voting Rights
Each share held entitles the Shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a special
meeting called upon written request of Shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
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Dividends
The net income of each Portfolio is determined and declared on each Business Day
as a dividend to Shareholders of record as of 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on that day.
Dividends are paid by each Portfolio in additional shares of the same class,
unless the Shareholder has elected to take such payment in cash, on the first
Business Day of each month. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on the Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
Liquidity Class, Adviser Class and Market Class Shares.
Performance
From time to time the Portfolios may advertise their "current yield" and
"effective compound yield." SUCH YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio
refers to the income generated by an investment in the Portfolio over a stated
seven-day period. 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 the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
Nations Municipal Reserves also may advertise its "tax-equivalent yield," which
is calculated by determining the rate of return that would have to be achieved
on a fully taxable investment to produce the after-tax equivalent of the
Portfolio's yield, assuming certain tax brackets for Shareholders.
The yield of the Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in a
Portfolio will actually yield in the future. Performance quotations will be
computed separately for each class of a Portfolio's shares. Because of
differences in the fees and expenses borne by Liquidity Class, Adviser Class and
Market Class Shares, the net yield on such shares can be expected, at any given
time, to be lower than the net yield on Capital Class Shares. Each Portfolio's
annual report contains additional performance information and is available on
request without charge from Stephens.
In addition, a Portfolio from time to time may compare its performance to that
of other mutual funds tracked by mutual fund rating services, of broad groups of
comparable mutual funds or of unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
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Taxes
Each Portfolio is treated as a separate entity for Federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As long as a Portfolio qualifies
for this special tax treatment, it will be relieved of Federal income tax on
that part of its net investment income (including, for this purpose, net
short-term capital gain) and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) that it distributed to
Shareholders.
Each Portfolio intends to distribute substantially all of its net investment
income (including, for this purpose, net short-term capital gain) to
Shareholders. Dividends declared by Nations Cash Reserves, Nations Treasury
Reserves and Nations Government Reserves from net investment income will be
taxable to Shareholders as ordinary income whether received in cash or in
additional shares and will not qualify for the corporate dividends-received
deduction. Nations Municipal Reserves may pay "exempt-interest dividends" to its
Shareholders if, at the close of each quarter of its taxable year, at least 50%
of the value of such Portfolio's assets consists of obligations the interest on
which is excludable from gross income. Exempt-interest dividends constitute the
portion of the aggregate dividends, as designated by the Portfolio, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt interest dividends are excludable from a Shareholder's gross income for
Federal income tax purposes, but may have certain collateral Federal income tax
consequences, as described in the SAI. Any dividends attributable to Nations
Municipal Reserve's taxable income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares to the extent of the
Portfolio's earnings and profits and will not qualify for the corporate
dividends-received deduction.
Any net capital gain will be distributed at least annually and will be taxed to
Shareholders as long-term capital gain, regardless of how long a Shareholder has
held shares. The Portfolios will make annual reports to Shareholders of the
Federal income tax status of all distributions.
Ordinarily, Shareholders will include in income all dividends declared by a
Portfolio in the year those dividends are paid. However, dividends declared by a
Portfolio in October, November or December of any year and payable to
Shareholders of record on a date in any of those months will be deemed to have
been paid by the Portfolio and received by the Shareholders on December 31st, if
paid by the Portfolio during the following January.
Income received on direct U.S. Government obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Government obligations normally is not exempt from state taxation. Nations Cash
Reserves, Nations Treasury Reserves and Nations Government Reserves will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisors to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Federal law requires the Trust to withhold 31% from any dividends (other than
exempt-interest dividends) paid by the Trust and/or redemptions
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(including exchange redemptions) that occur in certain Shareholder accounts if
the Shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified the Trust 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 withholdings results in
overpayment of taxes. Federal law also requires a Portfolio to withhold 30% or
the applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations. Further tax
information is contained in the SAI.
Independent Accountant, Custodian and
Transfer Agent
Price Waterhouse, LLP serves as the independent accountant to the Trust.
NationsBank of Texas, N.A., serves as each Portfolio's custodian (the
"Custodian"). The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Portfolio, (ii) $10.00 per repurchase
collateral transaction by the Portfolios, and (iii) $15.00 per purchase, sale
and maturity transaction involving the Portfolios.
First Data serves as transfer agent (the "Transfer Agent") for each Portfolio's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Appendix A -- Portfolio Securities
The following is a description of the permitted investments for the Portfolios:
U.S. TREASURY OBLIGATIONS -- bills, notes, and bonds issued by the U.S. Treasury
and STRIPS. STRIPS are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, STRIPS may be subject to greater interest rate volatility than
interest paying U.S. Treasury Obligations.
U.S. GOVERNMENT AGENCY SECURITIES -- certain Federal agencies, such as the
Government National Mortgage Association, have been established as
instrumentalities of the U.S. Government to supervise and finance
cer-
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tain types of activities. Issues of certain of these agencies, while not direct
obligations of the U.S. Government, are either backed by the full faith and
credit of the United States or are guaranteed by the Treasury or supported by
the issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association or "FNMA").
BANKERS' ACCEPTANCES -- a bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- a negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time: however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities; therefore, each Portfolio will not invest more than 10% of
its assets in such time deposits.
COMMERCIAL PAPER -- the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
GUARANTEED INVESTMENT CONTRACTS -- Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Portfolio may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Portfolio guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC becomes part of the general assets of the issuer,
and the contract is paid from the general assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by NationsBank. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC would be
considered an illiquid investment. Therefore, GICs are generally considered to
be illiquid investments.
OTHER INVESTMENT COMPANIES -- A Portfolio may invest in securities issued by
other investment companies to the extent such investments are consistent with
the Portfolio's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Portfolio 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 Portfolio bears directly in connection
with its own operations.
VARIABLE- AND FLOATING-RATE INSTRUMENTS -- certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which
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vary with changes in specified market rates or indices, such as a Federal
Reserve composite index. A variable-rate demand instrument is an obligation with
a variable or floating interest rate and an unconditional right of demand on the
part of the holder to receive payment of unpaid principal and accrued interest.
The Portfolios will invest in securities with demand features where (a) the
security or its issuer has received a short-term rating from an NRSRO; and (b)
the issuer of the demand feature, or another institution, undertakes to notify
promptly the holder of the security in the event that the demand feature is
substituted with a demand feature provided by another issuer. (Note, however,
that certain securities first issued on or before June 3, 1996 are not subject
to these rating and notice requirements.) An instrument with a demand period
exceeding seven days may be considered to be illiquid if there is no secondary
market for such security.
REPURCHASE AGREEMENTS -- agreements by which a person obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Portfolio may enter into repurchase
agreements jointly with other Portfolios and with investment portfolios of the
Nations Fund Family of mutual funds.
REVERSE REPURCHASE AGREEMENTS -- When a Portfolio 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 Portfolios 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
advantageous only if the interest cost to the Portfolios of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
At the time a Portfolio 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 Portfolios 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
Portfolios' 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 Portfolios' obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
the Portfolios 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 Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities are "gen-
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eral 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 Portfolio 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 Portfolio, a Portfolio 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 Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss. Some of these instruments may
be unrated, but unrated instruments purchased by a Portfolio will be determined
by the Adviser to be of comparable quality at the time of purchase to
instruments rated "high quality" by any major rating service. An issuer's
obligation to pay the principal of the note may be backed by an unconditional
bank letter or line of credit, guarantee, or commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Portfolio may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. Each Portfolio will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its total
assets unless the Adviser determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Portfolios' Board of Trustees.
Pursuant to these guidelines, the Adviser, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Portfolios expect that
they will only purchase rated municipal lease obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Portfolio's
limitation on the purchase of illiquid securities.
In addition, certain of the Portfolios 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
Portfolio's option specified municipal securities at a specified price. A
Portfolio will acquire stand-by commitments solely to facilitate portfo-
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lio liquidity and without intending to exercise its rights thereunder for
trading purposes.
Each Portfolio may invest in short-term securities, in commitments to purchase
such securities on a "when-issued" basis, and reserves the right to engage in
"put" transactions on a daily, weekly or monthly basis. Securities purchased on
a "when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Portfolio before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Portfolios will only commit to purchase a security on a when-issued
basis with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Portfolio to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Portfolio. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Portfolio to meet redemptions and remain as fully invested as
possible in municipal securities. The Portfolios will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board. Nations Municipal Reserves
may invest more than 40% of its portfolio in puts or other securities guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Portfolio and affect its
share price.
Although each Portfolio does not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities that
are payable solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Portfolio's total assets are invested in municipal securities that are
payable from the revenues of similar projects, the Portfolio 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.
SECURITIES OF FOREIGN ISSUERS -- Foreign investments involve risks that are
different from investments in securities of U.S. issuers. These risks may
include future unfavorable political and economic developments, possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign issuers. Foreign branches of foreign banks are not
regulated by U.S. banking authorities and generally are not bound by accounting,
auditing and financial reporting standards comparable to U.S. banks. Nations
Cash Reserves may invest in obligations of foreign branches of U.S. banks and
U.S. and London branches of foreign banks.
SHORT-TERM TRUST OBLIGATIONS -- Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by a trust,
either from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to
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the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Portfolio must satisfy the quality and
maturity requirements generally applicable to the Portfolio pursuant to Rule
2a-7 under the 1940 Act.
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 rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa. 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 groups which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1.
The following summarizes the highest three ratings used by D&P for bonds:
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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 rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
To provide more detailed indications of credit quality, the AA rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment.
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Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. D-2 indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term 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 two 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.
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.
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TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the two highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
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Prospectus
Nations Institutional Reserves (formerly known as
The Capitol Mutual Funds) (the "Trust") is an
open-end management investment company which seeks
to provide a convenient and economical means of
investing in one or more professionally managed
portfolios. The Trust's portfolios offer multiple
classes of shares; this Prospectus relates to the
Adviser Class Shares of the following diversified
money market portfolios (each, a "Portfolio"):
NATIONS CASH RESERVES, NATIONS TREASURY RESERVES,
NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL
RESERVES.
The Trust's Adviser Class Shares are offered to
institutional investors that meet the $100,000
minimum initial investment requirement and to
NationsBank, N.A., ("NationsBank"), its affiliates
and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary,
agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH PORTFOLIO TO USE
ITS BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE. AN INVESTMENT IN A
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT EACH
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated August 31, 1996 has been
filed with the Securities and Exchange Commission
("SEC") and is available without charge by writing
or calling the Trust at the address or telephone
number indicated in the column to the right. The
SAI is incorporated into this Prospectus by
reference. NationsBanc Advisors, Inc. ("NBAI") is
the investment adviser to the Portfolios.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Portfolios. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE PORTFOLIOS INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO THE TRUST, FOR WHICH THEY
ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE
TRUST.
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 Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
ADVISER CLASS SHARES
AUGUST 31, 1996
For purchase, redemption
and
performance information
call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
Expenses Summary 3
Financial Highlights 5
The Trust 9
Investment Objectives and Policies 9
General Investment Policies 12
Investment Limitations 12
Fundamental Policies 13
The Adviser 13
The Administrator and Co-Administrator 15
The Distributor 15
Shareholder Servicing Plan 16
Trustees of the Trust 17
Purchase, Redemption and Exchange of Shares 17
Voting Rights 19
Dividends 19
Performance 19
Taxes 20
Independent Accountant, Custodian and Transfer
Agent 21
Appendix A -- Portfolio Securities 22
Appendix B -- Description of Ratings 26
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE 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 THE TRUST OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY
THE TRUST OR BY THE DISTRIBUTOR IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the
Portfolios. The following table summarizes operating expenses for Adviser Class
Shares of the Portfolios. There are no transaction fees imposed upon the
purchase, redemption or exchange of shares. The Examples show the cumulative
expenses attributable to a hypothetical $1,000 investment in Adviser Class
Shares of the Portfolios over specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
Advisory Fees1 .04% .06% .05% .05%
Rule 12b-1 Fees (shareholder servicing fees) .25% .25% .25% .25%
Other Expenses .16% .14% .15% .15%
Total Operating Expenses1 .45% .45% .45% .45%
</TABLE>
1 The adviser, sub-investment adviser, administrator and co-administrator of the
Trust have agreed voluntarily to waive a portion or all of their fees and to
reimburse certain expenses of the Portfolios, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, sub-investment
adviser, administrator and co-administrator of the Trust each reserves the
right to terminate its waiver or reimbursement at any time in its sole
discretion. Absent these waivers, the Advisory Fees and Total Operating
Expenses for Nations Cash Reserves would be .30% and .71% of average net
assets, respectively; for Nations Treasury Reserves would be .30% and .69% of
average net assets, respectively; for Nations Government Reserves would be
.30% and .70% of average net assets, respectively; and for Nations Municipal
Reserves would be .30% and .70% of average net assets, respectively.
Additional operating expense information may be found under "The Adviser,"
"The Administrator and Co-Administrator" and "The Distributor."
3
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Adviser
Class Shares of the indicated Portfolio assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
Nations Cash Reserves $5 $14 $25 $57
Nations Treasury Reserves $5 $14 $25 $57
Nations Government Reserves $5 $14 $25 $57
Nations Municipal Reserves $5 $14 $25 $57
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. Certain figures contained in the above tables are based on amounts
incurred during each Portfolio's most recent fiscal year and have been adjusted
as necessary to reflect current service provider fees and/or reimbursements. If
current fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. The information set forth in the
foregoing table and examples relates only to the Adviser Class Shares. The Trust
also offers the Capital Class, Liquidity Class and Market Class Shares (formerly
Class A, Class B and Class D Shares, respectively) of the Portfolios. The "Other
Expenses" figures contained in the above tables are based on estimated amounts
for the Portfolios' current fiscal year and reflect anticipated fee waivers
and/or reimbursements. There is no assurance that any fee waivers and
reimbursements will continue at their present level beyond the current fiscal
year. For more complete descriptions of the Portfolios' operating expenses, see
"The Adviser," "The Administrator and Co-Administrator" and "The Distributor."
4
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountant, whose June 20, 1995 report thereon was unqualified. This information
should be read in conjunction with the financial statements and notes thereto
appearing in the Trust's Annual Financial Report for the fiscal year ended April
30, 1995, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES ADVISER CLASS
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
ADVISER CLASS SHARES: 04/30/95*
Net asset value, beginning of period $ 1.00
Net investment income 0.0316
Dividends from net investment income (0.0316)
Net asset value, end of period $ 1.00
Total Return++ 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 47,682
Ratio of operating expenses to average net assets 0.54%+
Ratio of net investment income to average net assets 4.71%+
Ratio of operating expenses to average net assets without waivers 0.77%+
Ratio of net investment income to average net assets without waivers 4.48%+
Net investment income per share without waivers $ 0.0300
</TABLE>
* The Nations Cash Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
5
<PAGE>
NATIONS TREASURY RESERVES ADVISER CLASS
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
04/30/95*
Net asset value, beginning of period $ 1.00
Net investment income 0.0308
Dividends from net investment income (0.0308)
Net asset value, end of period $ 1.00
Total Return++ 3.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 55,762
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net assets 4.54%+
Ratio of operating expenses to average net assets without waivers 0.75%+
Ratio of net investment income to average net assets without waivers 4.25%+
Net investment income per share without waivers $ 0.0288
</TABLE>
* The Nations Treasury Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
6
<PAGE>
NATIONS GOVERNMENT RESERVES ADVISER CLASS
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
04/30/95*
Net asset value, beginning of period $ 1.00
Net investment income 0.0299
Dividends from net investment income (0.0299)
Net asset value, end of period $ 1.00
Total Return++ 3.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 99,246
Ratio of operating expenses to average net assets 0.57%+
Ratio of net investment income to average net assets 4.10%+
Ratio of operating expenses to average net assets without waivers 0.79%+
Ratio of net investment income to average net assets without waivers 3.88%+
Net investment income per share without waivers $ 0.0283
</TABLE>
* The Nations Government Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
7
<PAGE>
NATIONS MUNICIPAL RESERVES ADVISER CLASS
<TABLE>
<CAPTION>
<S> <C>
PERIOD
ENDED
04/30/95*
Net asset value, beginning of period $ 1.00
Net investment income 0.0199
Dividends from net investment income (0.0199)
Net asset value, end of period $ 1.00
Total Return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 64,123
Ratio of operating expenses to average net assets 0.48%+
Ratio of net investment income to average net assets 3.11%+
Ratio of operating expenses to average net assets without waivers and/or expenses reimbursed 0.84%+
Ratio of net investment income to average net assets without waivers and/or expenses reimbursed 2.74%+
Net investment income per share without waivers and/or expenses reimbursed $ 0.0176
</TABLE>
* The Nations Municipal Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
8
<PAGE>
The Trust
The Capitol Mutual Funds, doing business as Nations Institutional Reserves, is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Fund Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc. and the Trust. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Portfolio is a series of the Trust. Except for
differences between classes of a Portfolio pertaining to distribution and
shareholder servicing arrangements, each share of each Portfolio represents an
equal proportionate interest in that Portfolio. This Prospectus relates to the
Adviser Class Shares of the Trust's Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves Portfolios.
NBAI is the investment adviser and TradeStreet is the sub-investment adviser for
each Portfolio. Information regarding the Capital Class, Liquidity Class and
Market Class Shares of the Portfolios is contained in separate prospectuses that
may be obtained from the Trust's distributor. To obtain additional information
regarding the Portfolios' other classes of shares which may be available to you,
contact Nations Fund at 1-800-626-2275.
Investment Objectives And Policies
Each Portfolio seeks to comply with regulations of the SEC applicable to money
market funds. These regulations impose certain quality, maturity and
diversification restraints on investments by a Portfolio. Under these
regulations, each Portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less and will acquire only eligible securities maturing
in 397 days or less. For further information regarding these restraints, see
"Appendix A -- Portfolio Securities."
NATIONS CASH RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in obligations denominated in U.S. dollars consisting
of: (i) commercial paper; (ii) obligations (including certificates of deposit,
time deposits, and bankers' acceptances) of thrift institutions, U.S. commercial
banks (including foreign branches of such banks), and U.S. and London branches
of foreign banks, provided that such institutions (or, in the case of a branch,
the parent institution) have total assets of $1 billion or more as shown on
their last published financial statements at the time of investment; (iii)
short-term corporate obligations of issuers of commercial paper whose commercial
paper is eligible for purchase by the Portfolio; (iv) instruments eligible for
acquisition by Nations Government Reserves (see below); and (v) repurchase
agreements and reverse repurchase agreements involving any of the foregoing
obligations or qualified first-tier money market collateral. The Portfolio also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies. The
short-term obligations that may be
9
<PAGE>
purchased by the Portfolio include instruments issued by trusts or certain
partnerships, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
trusts or partnerships.
The Portfolio reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than twenty-five percent of the Portfolio's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Portfolio may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements and cash.
NATIONS TREASURY RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest in direct obligations issued by the U.S. Treasury,
separately traded component parts of such obligations transferable through the
Federal book-entry system (known as Separately Traded Registered Interest and
Principal Securities or "STRIPS"), and repurchase agreements and reverse
repurchase agreements involving such obligations. The Portfolio also may invest
in obligations the principal and interest of which are backed by the full faith
and credit of the United States Government, provided that the Portfolio shall,
under normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government. The Portfolio also may invest in securities issued by other
investment companies, consistent with its investment objective and policies.
The dealers selected for the Portfolio must meet criteria established by S&P.
NATIONS GOVERNMENT RESERVES
The investment objective of this Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. There is no
assurance that the investment objective will be met.
The Portfolio will invest exclusively in instruments eligible for acquisition by
Nations Treasury Reserves and in obligations issued or guaranteed as to
principal and interest by the agencies and instrumentalities of the U.S.
Government and repurchase agreements and reverse repurchase agreements involving
such obligations.
NATIONS MUNICIPAL RESERVES
The Portfolio's investment objective is to preserve principal value and maintain
a high degree of liquidity while providing current income exempt from Federal
income taxes. There is no assurance that this objective will be met.
The Portfolio will invest in U.S. dollar denominated municipal securities of
issuers located in all fifty states, the District of Columbia, Puerto Rico and
other U.S. territories and possessions. At least 80% of the Portfolio's total
assets will be invested in securities the interest on which is exempt from
Federal income tax, based on opinions from bond counsel for the issuers.
Municipal notes in which the Portfolio may invest consist of general obligation
notes, tax anticipation notes, revenue anticipation notes, bond anticipation
notes, certificates of indebtedness, demand notes and construction loan notes.
The Portfolio's investments in any of the notes
10
<PAGE>
described above will be limited to those obligations (i) where both principal
and interest are backed by the full faith and credit of the United States, (ii)
which are rated MIG-1 or VMIG-1 at the time of investment by Moody's Investors
Service, Inc. ("Moody's"), (iii) which are rated SP-1 at the time of investment
by Standard & Poor's Corporation ("S&P"), or (iv) which, if not rated, are of
comparable quality in the judgment of the Adviser to obligations rated MIG-1,
VMIG-1 or SP-1. The Portfolio also may invest in securities issued by other
investment companies, consistent with its investment objective and policies.
The Portfolio invests in municipal securities which are determined to present
minimal credit risks and which at the time of purchase are considered to be of
"high quality" -- E.G., rated "AA" or higher by Duff & Phelps Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA Limited or its
affiliate IBCA Inc. (collectively, "IBCA") or Thomson BankWatch, Inc.
("BankWatch") or Aa or higher by Moody's, in the case of bonds; rated "A" or
higher by D&P, Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain
bonds which are unrated securities (I.E., lacking a short-term rating from the
requisite number of nationally recognized statistical rating organizations);
rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or
"MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1" or
higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six nationally
recognized statistical rating organizations (collectively, "NRSROs"). Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable municipal securities ratings are described in "Appendix
B -- Description of Ratings."
The payment of principal and interest on most securities purchased by the
Portfolio will depend upon the ability of the issuers to meet their obligations.
The District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer." For more
information concerning municipal securities, see "Appendix A -- Municipal
Securities."
The Adviser has discretion to invest up to 20% of the Portfolio's assets in
taxable money market instruments (consisting of obligations issued or guaranteed
by the U.S. Government or its agencies and instrumentalities and repurchase
agreements) and municipal securities of the type described above, which are
subject to the alternative minimum tax. However, the Portfolio generally intends
to be fully invested in federally tax-exempt securities.
11
<PAGE>
General Investment Policies
For a description of the Portfolios' permitted investments see "Appendix
A -- Portfolio Securities" and for further information about ratings see the
"Appendix B -- Description of Ratings."
Each Portfolio except Nations Municipal Reserves may lend the securities in
which it is invested pursuant to agreements requiring that the loan be
continuously secured by cash, securities of the U.S. Government or its agencies
or any combination of cash and such securities. The Portfolio will continue to
receive interest on the securities loaned while simultaneously earning interest
on the investment of cash collateral in U.S. Government securities. Collateral
is marked to market daily to provide a level at least equal to the market value
of the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Portfolio invests guarantees only the payment of
principal and interest on the guaranteed security and does not guarantee the
yield or value of that security or the yield or value of shares of that
Portfolio.
Investment Limitations
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) if as a result more than
5% of the total assets of the Portfolio would be invested in the securities of
such issuer. This restriction applies to 75% of each Portfolio's assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply (a) with respect to Nations Cash Reserves,
Nations Treasury Reserves and Nations Government Reserves, to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) a Portfolio may
enter into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Portfolio's total assets;
and (c) each Portfolio except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
Additional investment limitations are set forth in the SAI.
12
<PAGE>
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by the Portfolios are subject to limitations imposed under
regulations adopted by the SEC. These regulations generally require money market
funds to acquire only U.S. dollar denominated obligations with remaining
maturities of 397 days or less and to maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, money market funds may
acquire only obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (or one if it is the only NRSRO rating such
obligation) in the highest short-term rating category or, if unrated, determined
to be of comparable quality (a "first tier security"), or (ii) rated according
to the foregoing criteria in the second highest short-term rating category or,
if unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
The Adviser will determine that an obligation presents minimal credit risks or
that unrated instruments are of comparable quality in accordance with guidelines
established by the Trustees. In addition, investments by Nations Cash Reserves,
Nations Government Reserves and Nations Treasury Reserves in second tier
securities are subject to the further constraints that (i) no more than 5% of a
Portfolio's assets may be invested in such securities in the aggregate, and (ii)
any investment in such securities of one issuer is limited to the greater of 1%
of the Portfolio's total assets or $1 million. In addition, such Portfolios may
only invest up to 25% of their total assets in the first tier securities of a
single issuer for three business days.
Fundamental Policies
The investment objective of each Portfolio and the investment limitations
described above are fundamental policies of each Portfolio. It is also a
fundamental policy of each Portfolio to seek to maintain a constant net asset
value of $1.00 per share. There is no assurance that the Portfolios will be able
to maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Portfolio without the
consent of the holders of a majority of that Portfolio's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of a
Portfolio's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by proxy, or (ii)
more than 50% of the Portfolio's outstanding shares, whichever is less.
The Adviser
NationsBanc Advisors, Inc. serves as investment adviser to the Portfolios. NBAI
is a wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza,
13
<PAGE>
Charlotte, North Carolina 28255, serves as sub-investment adviser to the
Portfolios. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides trust and investment management services to individuals,
corporations, and institutions, both nationally and internationally.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Portfolio's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Portfolio, makes decisions
with respect to and places orders for that Portfolio'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 NationsBank or
which have sold shares in the Portfolio; if the Adviser believes 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 Portfolio may
invest in securities of companies with which NationsBank has a lending
relationship.
The Trust 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.
Morrison & Foerster LLP, counsel to the Trust and special counsel to
NationsBank, has advised the Trust and NationsBank that subsidiaries of
NationsBank may perform the services contemplated by the Investment Advisory and
Sub-Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that there are no controlling judicial or administrative interpretations or
decisions and that future judicial or administrative interpretations of, or
decisions relating to, present federal or state statutes, including the
Glass-Steagall Act, and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as future changes in such
statutes, regulations and judicial or administrative decisions or
interpretations, could prevent such subsidiaries of NationsBank from continuing
to perform, in whole or in part, such services. If such subsidiaries of
NationsBank were prohibited from performing any such services, it is expected
that the Board of Trustees of the Trust would recommend to each Portfolio's
shareholders that they approve new advisory and/or sub-advisory agreements with
another entity or entities qualified to perform such services.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Portfolio. For the services provided and the expenses assumed pursuant to the
Sub-Advisory Agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of 0.033% of the average daily net
assets of each Portfolio.
NBAI, TradeStreet and the administrator and the co-administrator of the
Portfolios have voluntarily agreed to waive their fees proportionately (and
reimburse the Portfolios for certain expenses) in order to limit the total
annualized operating expenses of Adviser Class Shares (exclusive of Rule 12b-1
fees) of the Portfolios (as a percentage of average daily net assets) to 0.20%.
14
<PAGE>
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated. For the fiscal year ended April 30, 1995, the Portfolios paid
NationsBank under a prior Advisory Agreement an advisory fee, after waivers, at
the indicated rate of the Portfolios' average net assets: Nations Cash
Reserves -- 0.11%; Nations Treasury Reserves -- 0.04%; Nations Government
Reserves -- 0.13%; and Nations Municipal Reserves -- 0.07%.
The Administrator and Co-Administrator
Stephens Inc. ("Stephens"), with principal offices at 111 Center Street, Little
Rock, Arkansas 72201, serves as the administrator of the Trust pursuant to an
Administration Agreement. Pursuant to the terms of the Administration Agreement,
Stephens provides various administrative and corporate secretarial services to
the Portfolios, 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 Portfolios.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Portfolios pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Portfolios,
including performing calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain general accounting records for the Portfolios. 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 Portfolio's average daily net assets.
For the fiscal year ended April 30, 1995, the Portfolios paid their
administrator a fee, after waivers, at the indicated rate of average net assets:
Nations Cash Reserves -- 0.06%; Nations Treasury Reserves -- 0.06%; Nations
Government Reserves -- 0.06%; and Nations Municipal Reserves -- 0.06%.
In addition, the Trust pays its other operating expenses, including audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial and transfer agency services and
registering shares under Federal and state securities laws and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.
The Distributor
Shares of the Portfolios are sold on a continuous basis by Stephens, as the
Portfolios' sponsor and distributor. Stephens is a registered broker/dealer with
principal offices at 111 Center Street, Little Rock, Arkansas 72201. The Trust
has entered into a distribution agreement with Stephens which provides that
Stephens has the
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exclusive right to distribute shares of the Portfolios.
In addition to Adviser Class Shares, the Portfolios also offer Capital Class,
Liquidity Class and Market Class Shares. Capital Class Shares, which do not bear
distribution or shareholder servicing fees, are offered only to NationsBank, its
affiliates and correspondents, for the investment of funds for which they act in
a fiduciary capacity and which meet the $1,000,000 minimum initial investment
requirement. Liquidity Class Shares are offered to institutional investors which
meet the $500,000 minimum initial investment requirement and to NationsBank and
its affiliates and correspondents, for the investment of their own funds or
funds for which they act in a fiduciary, agency or custodial capacity. Liquidity
Class Shares of the Portfolios bear aggregate distribution and shareholder
servicing fees of up to 0.85% of the class's average daily net assets. Market
Class Shares are offered through banks, broker/dealers and other financial
institutions that have entered into a shareholder servicing agreement with the
Trust to individiuals and institutions which meet the $250,000 minimum initial
investment for such shares. Market Class Shares bear aggregate distribution and
shareholder servicing fees of up to 0.45% of the class's average net assets. A
salesperson and any other person or entity entitled to receive compensation for
selling or servicing Portfolio shares may receive different compensation with
respect to one particular class of shares over another in a Portfolio.
Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Adviser Class Shares of the Portfolios. Pursuant to the
Servicing Plan, the Trust, on behalf of each Portfolio, may enter into
shareholder servicing agreements ("Servicing Agreements") with banks,
broker/dealers and other financial institutions, including certain affiliates of
NationsBank ("Servicing Agents"). Under the Servicing Agreements, the Servicing
Agents will provide various shareholder support services to their customers that
are the owners of Adviser Class Shares, including 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 Portfolios on behalf of customers; providing
information periodically to customers showing their position in Adviser Class
Shares; arranging for bank wires; and providing such other similar services as
may reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Portfolios' Adviser Class Shares. The Servicing
Plan also provides that, to the extent any portion of the fees payable under the
Servicing Plan is deemed to be for services primarily intended to result in the
sale of Portfolio shares, such fees are deemed approved and may be paid under
the Servicing Plan. Accordingly, the Servicing Plan was approved and will be
operated pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act").
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Adviser Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements
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require Servicing Agents to disclose to their Customers any compensation payable
to the Servicing Agents by the Trust and any other compensation payable by
Customers in connection with the investment of their assets in Adviser Class
Shares. Customers should read this Prospectus in light of the terms governing
their accounts with their Servicing Agents.
The Trust 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.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
Purchase, Redemption and Exchange
of Shares
PURCHASES: Adviser Class Shares are offered to institutional investors,
including NationsBank, its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity. The minimum initial investment in Adviser Class Shares is $100,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day. 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 (as defined below). A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Municipal Reserves). A purchase order received
after such time will not be accepted; notice thereof will be given to the
institution placing the order and any funds received will be returned promptly
to the sending institution. If federal funds are not available by the close of
regular trading on the Exchange (currently 4:00 p.m., Eastern time), the order
will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by Stephens or the Transfer Agent.
The net asset value of shares is calculated as of 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. The assets of the Portfolios are valued based upon the amortized
cost method. Although the Portfolios seek to maintain a net asset value per
share of $1.00, there can be no assurance that the net asset value per share
will not vary.
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REDEMPTIONS: Redemption orders must be received on a Business Day before 3:00
p.m., Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), and payment will normally be wired the same day. The Trust reserves
the right to wire redemption proceeds within three Business Days after receiving
a redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Portfolio. Redemption orders will not be accepted by Stephens
or the Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective.
Due to the high cost of maintaining Portfolio accounts with small balances, the
Trust reserves the right to redeem an investor's account and send the proceeds
to such investor if the balance falls below $50,000 because of a redemption.
However, investors will be given 30 days' notice to make an additional
investment to increase their account balance to $50,000 or more.
EXCHANGES: The exchange feature enables a Shareholder of Adviser Class Shares of
a Portfolio to acquire Adviser Class Shares of another Portfolio when that
Shareholder believes that a shift between Portfolios is an appropriate
investment decision. An exchange of Adviser Class Shares for Adviser Class
Shares of another Portfolio is made on the basis of the next calculated net
asset value per share of each Portfolio after the exchange order is received.
The Portfolio and each of the other funds of Nations Fund may limit the number
of times this exchange feature may be exercised by a Shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and Shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
Shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the Shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. If a Shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. You should be aware that by electing the telephone transaction
feature, you may be giving up a measure of security that you may have if you
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were to authorize written requests only. You may bear the risk of any resulting
losses from a telephone transaction. Nations Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and if Nations Fund and its service providers fail to employ such measures, they
may be liable for any losses due to unauthorized or fraudulent instructions.
Nations Fund requires a form of personal identification prior to acting upon
instructions received by telephone and provides written confirmation to
Shareholders of each telephone share transaction. In addition, Nations Fund
reserves the right to record all telephone conversations.
Voting Rights
Each share held entitles the Shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by Shareholders at a special
meeting called upon written request of Shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
Shareholders requesting the meeting.
Dividends
The net income of each Portfolio is determined and declared on each Business Day
as a dividend to Shareholders of record as of 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Municipal Reserves), on that day.
Dividends are paid by each Portfolio in additional shares of the same class,
unless the Shareholder has elected to take such payment in cash, on the first
Business Day of each month. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on the Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
Liquidity Class, Adviser Class and Market Class Shares.
Performance
From time to time the Portfolios may advertise their "current yield" and
"effective compound yield." SUCH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio
refers to the income generated by an investment in the Portfolio over a stated
seven-day period. 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 the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because
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of the compounding effect of this assumed reinvestment.
Nations Municipal Reserves also may advertise its "tax-equivalent yield," which
is calculated by determining the rate of return that would have to be achieved
on a fully taxable investment to produce the after-tax equivalent of the
Portfolio's yield, assuming certain tax brackets for Shareholders.
The yield of the Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in a
Portfolio will actually yield in the future. Performance quotations will be
computed separately for each class of a Portfolio's shares. Because of
differences in the fees and expenses borne by Liquidity Class, Adviser Class and
Market Class Shares, the net yield on such shares can be expected, at any given
time, to be lower than the net yield on Capital Class Shares. Each Portfolio's
annual report contains additional performance information and is available on
request without charge from Stephens.
In addition, a Portfolio from time to time may compare its performance to that
of other mutual funds tracked by mutual fund rating services, of broad groups of
comparable mutual funds or of unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
Taxes
Each Portfolio is treated as a separate entity for Federal income tax purposes
and is not combined with the Trust's other portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As long as a Portfolio qualifies
for this special tax treatment, it will be relieved of Federal income tax on
that part of its net investment income (including, for this purpose, net
short-term capital gain) and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) that it distributed to
Shareholders.
Each Portfolio intends to distribute substantially all of its net investment
income (including, for this purpose, net short-term capital gain) to
Shareholders. Dividends declared by Nations Cash Reserves, Nations Government
Reserves and Nations Treasury Reserves from net investment income will be
taxable to Shareholders as ordinary income whether received in cash or in
additional shares and will not qualify for the corporate dividends-received
deduction. Nations Municipal Reserves may pay "exempt-interest dividends" to its
Shareholders if, at the close of each quarter of its taxable year, at least 50%
of the value of such Portfolio's assets consists of obligations the interest on
which is excludable from gross income. Exempt-interest dividends constitute the
portion of the aggregate dividends, as designated by the Portfolio, equal to the
excess of the excludable interest over certain amounts disallowed as deductions.
Exempt interest dividends are excludable from a Shareholder's gross income for
Federal income tax purposes, but may have certain collateral Federal income tax
consequences, as described in the SAI. Any dividends attributable to Nations
Municipal Reserve's taxable income will be taxable to shareholders as ordinary
income whether received in cash or in additional shares to the extent of the
Portfolio's earnings and profits and will not qualify for the corporate
dividends-received deduction.
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Any net capital gain will be distributed at least annually and will be taxed to
Shareholders as long-term capital gain, regardless of how long a Shareholder has
held shares. The Portfolios will make annual reports to Shareholders of the
Federal income tax status of all distributions.
Ordinarily, Shareholders will include in income all dividends declared by a
Portfolio in the year those dividends are paid. However, dividends declared by a
Portfolio in October, November or December of any year and payable to
Shareholders of record on a date in any of those months will be deemed to have
been paid by the Portfolio and received by the Shareholders on December 31st, if
paid by the Portfolio during the following January.
Income received on direct U.S. Government obligations is exempt from tax at the
state level when received directly and may be exempt, depending on the state,
when received by a Shareholder from a Portfolio provided certain conditions are
satisfied. Interest received on repurchase agreements collateralized by U.S.
Government obligations normally is not exempt from state taxation. Nations Cash
Reserves, Nations Government Reserves and Nations Treasury Reserves will inform
Shareholders annually of the percentage of income and distributions derived from
direct U.S. Government obligations. Shareholders should consult their tax
advisors to determine whether any portion of the income dividends received from
a Portfolio is considered tax exempt in their particular states.
Federal law requires the Trust to withhold 31% from any dividends (other than
exempt-interest dividends) paid by the Trust and/or redemptions (including
exchange redemptions) that occur in certain Shareholder accounts if the
Shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified the Trust 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 withholdings results in
overpayment of taxes. Federal law also requires a Portfolio to withhold 30% or
the applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Portfolios. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations. Further tax
information is contained in the SAI.
Independent Accountant, Custodian and
Transfer Agent
Price Waterhouse LLP serves as the independent accountant of the Trust.
NationsBank of Texas, N.A., serves as each Portfolio's custodian (the
"Custodian"). The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses,
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fees payable monthly (i) at the rate of 1.25% of 1% of the average daily net
assets of each Portfolio, (ii) $10.00 per repurchase collateral transaction by
the Portfolios, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Portfolios.
TSSG serves as transfer agent (the "Transfer Agent") for each Portfolio's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Appendix A -- Portfolio Securities
The following is a description of the permitted investments for the Portfolios:
U.S. TREASURY OBLIGATIONS -- bills, notes, and bonds issued by the U.S. Treasury
and STRIPS. STRIPS are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, STRIPS may be subject to greater interest rate volatility than
interest paying U.S. Treasury Obligations.
U.S. GOVERNMENT AGENCY SECURITIES -- certain Federal agencies, such as the
Government National Mortgage Association, have been established as
instrumentalities of the U.S. Government to supervise and finance certain types
of activities. Issues of certain of these agencies, while not direct obligations
of the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury. The issues of other agencies are
supported only by the credit of the instrumentality (e.g., Federal National
Mortgage Association or "FNMA").
BANKERS' ACCEPTANCES -- a bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT -- a negotiable interest-bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity.
TIME DEPOSITS -- a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time: however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities; therefore, each Portfolio will not invest more than 10% of
its assets in such time deposits.
COMMERCIAL PAPER -- the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues vary
from a few days to nine months.
GUARANTEED INVESTMENT CONTRACTS -- Guaranteed investment contracts ("GICs") are
investment instruments issued by highly rated insurance companies. Pursuant to
such contracts, a Portfolio may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Portfolio guaranteed interest. The insurance company may assess
periodic charges against a GIC for
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expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
A Portfolio will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by NationsBank. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, a Portfolio may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC would be
considered an illiquid investment. Therefore, GICs are generally considered to
be illiquid investments.
OTHER INVESTMENT COMPANIES -- A Portfolio may invest in securities issued by
other investment companies to the extent such investments are consistent with
the Portfolio's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Portfolio 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 Portfolio bears directly in connection
with its own operations.
VARIABLE- AND FLOATING-RATE INSTRUMENTS -- certain instruments issued,
guaranteed or sponsored by the U.S. Government or its agencies, state and local
government issuers, and certain debt instruments issued by domestic banks or
corporations, may carry variable or floating rates of interest. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Portfolios will
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered to be illiquid if there is no secondary market for such
security.
REPURCHASE AGREEMENTS -- agreements by which a person obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Portfolio may enter into repurchase
agreements jointly with other Portfolios and with investment portfolios of the
Nations Fund Family of mutual funds.
REVERSE REPURCHASE AGREEMENTS -- When a Portfolio 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 Portfolios 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
advantageous only if the inter-
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est cost to the Portfolios of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Portfolio 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 Portfolios 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
Portfolios' 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 Portfolios' obligation to repurchase the securities. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Portfolios do not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
the Portfolios 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 Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as the user of the facility being
financed. Private activity bonds held by a Portfolio 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 Portfolio, a Portfolio 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 Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss. Some of these instruments may
be unrated, but unrated instruments purchased by a Portfolio will be determined
by the Adviser to be of comparable quality at the time of purchase to
instruments rated "high quality" by any major rating service. An issuer's
obligation to pay the principal of the note may be backed by an unconditional
bank
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letter or line of credit, guarantee, or commitment to lend.
Municipal securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Portfolio may acquire municipal
lease obligations that may be assigned by the lessee to another party provided
the obligation continues to provide tax-exempt interest. Each Portfolio will not
purchase municipal lease obligations to the extent it holds municipal lease
obligations and illiquid securities in an amount exceeding 10% of its total
assets unless the Adviser determines that the municipal lease obligations are
liquid pursuant to guidelines established by the Portfolios' Board of Trustees.
Pursuant to these guidelines, the Adviser, in making this liquidity
determination, will consider, among other factors, the strength and nature of
the secondary market for such obligations, the prospect for its future
marketability and whether such obligations are rated. The Portfolios expect that
they will only purchase rated municipal lease obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Portfolio's
limitation on the purchase of illiquid securities.
In addition, certain of the Portfolios 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
Portfolio's option specified municipal securities at a specified price. A
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and without intending to exercise its rights thereunder for trading
purposes.
Each Portfolio may invest in short-term securities, in commitments to purchase
such securities on a "when-issued" basis, and reserves the right to engage in
"put" transactions on a daily, weekly or monthly basis. Securities purchased on
a "when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Portfolio before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Portfolios will only commit to purchase a security on a when-issued
basis with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Portfolio to sell a security at a fixed price prior to
maturity. The underlying municipal securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Portfolio. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Portfolio to meet redemptions and remain as fully invested as
possible in municipal securities. The Portfolios will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board. Nations Municipal Reserves
may invest more than 40% of its portfolio in puts or other securities guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Portfolio and affect its
share price.
Although each Portfolio does not presently intend to do so on a regular basis,
each may
25
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invest more than 25% of its total assets in municipal securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Portfolio's total assets are invested in municipal securities that are payable
from the revenues of similar projects, the Portfolio 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.
SECURITIES OF FOREIGN ISSUERS -- Foreign investments involve risks that are
different from investments in securities of U.S. issuers. These risks may
include future unfavorable political and economic developments, possible
withholding taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest. Additionally, there may be less public information
available about foreign issuers. Foreign branches of foreign banks are not
regulated by U.S. banking authorities and generally are not bound by accounting,
auditing and financial reporting standards comparable to U.S. banks. Nations
Cash Reserves may invest in obligations of foreign branches of U.S. banks and
U.S. and London branches of foreign banks.
SHORT-TERM TRUST OBLIGATIONS -- Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the
Portfolio to a proportional fractional interest in payments received by the
trust, either from the underlying securities owned by the trust or pursuant to
other arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Portfolio must satisfy the quality and maturity requirements
generally applicable to the Portfolio pursuant to Rule 2a-7 under the 1940 Act.
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 rating 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
26
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payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa. 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 groups which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1.
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 rating may be
modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned the F-1+ and F-1 ratings.
To provide more detailed indications of credit quality, the AA rating may be
modified by the
27
<PAGE>
addition of a plus or minus sign to show relative standing within this major
rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
28
<PAGE>
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
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 two 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.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the two highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
29
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NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Investment Adviser: Distributor and Administrator:
NationsBanc Advisors, Inc. Stephens Inc.
Sub-Investment Adviser: Co-Administrator:
TradeStreet Investment Associates, Inc. First Data Investor Services Group,
Inc.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") and should be read in conjunction with the Trust's prospectuses dated
August 31, 1996 (the "Prospectuses"). Prospectuses may be obtained through the
Distributor, Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
The Trust.................................................................................................2
Description of Permitted Investments......................................................................2
The Adviser ..............................................................................................9
The Administrator and Co-Administrator....................................................................11
Counsel...................................................................................................13
Trustees and Officers.....................................................................................13
Compensation Table........................................................................................16
Reporting.................................................................................................17
Investment Limitations....................................................................................17
Securities Lending........................................................................................20
Performance Information...................................................................................20
Purchase and Redemption of Shares.........................................................................23
Distribution and Shareholder Servicing Plans..............................................................24
Determination of Net Asset Value..........................................................................29
Taxes.....................................................................................................30
Portfolio Transactions....................................................................................33
Custodian and Transfer Agent..............................................................................34
Description of Shares.....................................................................................34
Shareholder Liability.....................................................................................35
Limitation of Trustees' Liability.........................................................................35
5% Shareholders...........................................................................................35
Experts and Financial Information.........................................................................36
</TABLE>
August 31, 1996
<PAGE>
THE TRUST
Nations Institutional Reserves, formerly known as The Capitol Mutual Funds(1),
is an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The
Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest ("shares"). Each share of each portfolio represents an equal
proportionate interest in that portfolio. See "Description of Shares." This
Statement of Additional Information ("SAI") relates to the Trust's Nations Cash
Reserves, Nations Treasury Reserves, Nations Government Reserves and Nations
Municipal Reserves portfolios (the "Portfolios"). The Nations Cash Reserves,
Nations Treasury Reserves, Nations Government Reserves and Nations Municipal
Reserves portfolios were formerly known as the Money Market Portfolio, Treasury
Portfolio, Government Portfolio and Tax Free Money Market Portfolio,
respectively.
Prior to May 1, 1994, the Trust also offered shares in four other portfolios:
the Equity Portfolio, Special Equity Portfolio, Fixed Income Portfolio and
Maryland Tax Free Securities Portfolio. Pursuant to an Agreement and Plan of
Reorganization between the Trust and Nations Fund Trust, another open-end
management investment company, such portfolios transferred all of their assets
to corresponding series of Nations Fund Trust in return for shares of the
corresponding series of Nations Fund Trust and the assumption by such series of
stated liabilities of the portfolios. The shares so received by such portfolios
were distributed to the holders of shares in the portfolios and such portfolios
were dissolved and liquidated. Accordingly, information concerning such
portfolios is not provided in this SAI.
DESCRIPTION OF PERMITTED INVESTMENTS
Money Market Securities
Direct obligations of the U.S. Government consist of bills, notes and bonds
issued by the U.S. Treasury. Obligations issued by agencies of the U.S.
Government, while not direct obligations of the U.S. Government, are either
backed by the full faith and credit of the U.S. or are guaranteed by the U.S.
Treasury or supported by the issuing agency's right to borrow from the U.S.
Treasury.
The obligations of U.S. commercial banks constitute certificates of deposit,
time deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however time deposits cannot be traded in the secondary
market. Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are
1 More specifically, Nations Institutional Reserves is the name under which
The Capitol Mutual Funds conducts business.
2
<PAGE>
used by corporations to
finance the shipment and storage of goods and furnish dollar exchanges.
Maturities are generally six months or less.
The Portfolios may purchase variable-rate and floating-rate
obligations as described in the Prospectuses. If such instrument is not
rated, the Adviser will consider the earning power, cash flows, and
other liquidity ratios of the issuers and guarantors of such
obligations. If the obligation is subject to a demand feature, the
Adviser will monitor its financial status to meet payment on demand. In
addition, the Portfolios will limit their investments in securities
with demand features where (a) the security or its issuer has received a
short-term rating from a nationally recognized statistical
rating organization(2); and (b) the issuer of the demand feature, or
another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a
demand feature provided by another issuer. (Note, however, that certain
securities first issued on or before June 3, 1996 are not obligated to
meet these rating and notice requirements. In determining average
weighted portfolio maturity, a variable-rate demand instrument issued
or guaranteed by the U.S. Government or an agency or instrumentality
thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or
the time a Portfolio can recover payment of principal as specified in
the instrument. Variable- or floating-rate instruments bear interest
at a rate which varies with changes in market rates.
Commercial paper which may be purchased by the Portfolios includes
variable-amount master demand notes which may or may not be backed by bank
letters of credit. These notes permit the investment of fluctuating amounts at
varying market rates of interest pursuant to direct arrangements between the
Trust, as lender, and the borrower. Such notes provide that the interest rate on
the amount outstanding varies on a periodic basis (e.g. daily, weekly or
monthly) depending upon a stated short-term interest rate index. Both the lender
and the borrower may have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable-amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
Adviser will monitor on an ongoing basis the earnings power, cash flow, and
liquidity ratios of the issuers of such instruments and will similarly monitor
the ability of an issuer of a demand instrument to pay principal and interest on
demand. In addition, variable-amount master demand notes must meet the demand
feature ratings and notice requirements set forth above.
2 As discussed in the Prospectuses, the six nationally recognized statistical
rating organizations, or "NRSROs," are Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Standard & Poor's Corporation, IBCA Limited or
its affiliate IBCA Inc., Thomson BankWatch, Inc. and Moody's Investors
Service, Inc.
3
<PAGE>
Pursuant to its investment policies, a Portfolio may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies such as the
Government National Mortgage Association ("GNMA"), a wholly-owned U.S.
Government corporation which guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership interests in a pool of federally
insured mortgage loans. GNMA certificates represent ownership interests in
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
Repurchase agreements are agreements by which a person (e.g., a Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or recognized securities
dealer) at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value of the underlying security.
The repurchase agreements entered into by the Portfolios will provide that the
underlying security at all times shall have a value at least equal to 102% of
the resale price stated in the agreement (the Adviser, the Custodian or an agent
of either such party monitors compliance with this requirement). Under all
repurchase agreements entered into by the Portfolios, the Custodian or its agent
must take possession of the underlying collateral. However, if the seller
defaults, the Portfolios could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale including accrued interest are
less than the resale price provided in the agreement including interest. In
addition, even though the Bankruptcy Code provides protection for most
repurchase agreements, if the seller should be involved in bankruptcy or
insolvency proceedings, the Portfolios may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolios are treated as an unsecured creditor and required to return the
underlying security to the seller's estate. Repurchase agreements are a
permissible investment for all Portfolios.
4
<PAGE>
Reverse Repurchase Agreements are agreements by which a person (e.g., a
Portfolio) 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. At the time a Portfolio 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 Portfolios 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 Portfolios' 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 Portfolios' obligation to repurchase the securities. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Portfolios do not establish and
maintain a segregated account (as described above). In addition, some or all of
the proceeds received by a Portfolio from the sale of a portfolio instrument may
be applied to the purchase of a repurchase agreement. To the extent the proceeds
are used in this fashion and a common broker/dealer is the counterparty on both
the reverse repurchase agreement and the repurchase agreement, the arrangement
might be recharacterized as a swap transaction. Under the requirements of the
1940 Act, the Portfolios 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 Portfolios' asset coverage and other factors at the time
of a reverse repurchase, the Portfolios may not establish a segregated account
when the Adviser believes it is not in the best interests of the Portfolios to
do so. In this case, such reverse repurchase agreements will be considered
borrowings subject to the asset coverage described above.
Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Portfolio can demand payment of
the obligation at all times or at stipulated dates on short notice (not to
exceed 30 days) at par plus accrued interest. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must, in the Adviser's opinion be comparable to the long-term bond or commercial
paper ratings discussed in the relevant Prospectus. The Adviser will monitor the
earnings power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. The Adviser may purchase other types of tax-exempt
instruments as long as they are of a quality equivalent to the long-term bond or
commercial paper ratings discussed in the relevant Prospectus, including
municipal lease obligations and participation interests in municipal securities
(such as industrial development bonds and municipal lease purchase payments).
Nations Municipal Reserves may engage in put transactions. The Adviser has the
authority to purchase securities at a price which would result in a yield to
maturity lower than that generally offered by the seller at the time of purchase
when the Portfolio can simultaneously acquire the right to sell the securities
back to the seller, the issuer, or a third party (the "writer") at an
agreed-
5
<PAGE>
upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Portfolio to meet redemptions and remain as fully
invested as possible in municipal securities. The right to put the securities
depends on the writer's ability to pay for the securities at the time the put is
exercised. The Portfolio will limit its put transactions to institutions which
the Adviser believes present minimum credit risks, and the Adviser will use its
best efforts to initially determine and continue to monitor the financial
strength of the sellers of the options by evaluating their financial statements
and such other information as is available in the marketplace. It may, however,
be difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any writer
is unable to honor a put for financial reasons, the Portfolio would be a general
creditor (i.e., on a parity with all other unsecured creditors) of the writer.
Moreover, particular provisions of the contract between the Portfolio and the
writer may excuse the writer from repurchasing the securities; for example, a
change in the published rating of the underlying securities or any similar event
that has an adverse effect on the issuer's credit or a provision in the contract
that the put will not be exercised except in certain special cases, for example,
to maintain portfolio liquidity. Changes in the credit quality of banks and
other financial institutions guaranteeing puts (or similar securities supported
by credit and liquidity enhancements) could cause losses to the Portfolio and
affect its share price. The Portfolio could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Portfolio.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Portfolio could seek to negotiate terms for
the extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Portfolio, the Portfolio could, of course, sell the
security. The maturity of the underlying security will generally be different
from that of the put. There is no limit to the percentage of portfolio
securities that the Portfolio may purchase subject to a put but the amount paid
directly or indirectly for premiums on all puts outstanding will not exceed 2%
of the value of the total assets of the Portfolio calculated immediately after
any such put is acquired. For the purpose of determining the "maturity" of
securities purchased subject to an option to put, and for the purpose of
determining the average dollar-weighted maturity of the Portfolio including such
securities the Trust will consider "maturity" to be the first date on which it
has the right to demand payment from the writer of the put although the final
maturity of the security is later than such date.
Separately Traded Registered Interest and Principal Securities
Each of the Portfolios may invest in Separately Traded Registered Interest and
Principal Securities ("STRIPS") which are component parts of U.S. Treasury
Securities traded through the Federal Book-Entry System. The Adviser will only
purchase STRIPS that it determines are liquid or, if illiquid, do not violate
each Portfolio's investment policy concerning investments in illiquid
securities. Consistent with Rule 2a-7 under the Investment Company Act of 1940
(the "1940
6
<PAGE>
Act"), the Adviser will only purchase STRIPS for the Portfolios that
have a remaining maturity of 397 days or less.
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 Portfolio 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 Portfolio, the Portfolio 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 Portfolio to dispose of the
instrument if the issuer defaulted on its payment obligation or during periods
the Portfolio is not entitled to exercise its demand rights, and the Portfolio
could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments
purchased by a Portfolio 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 Portfolio will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged
loans to municipal borrowers, some of which may be referred to as "municipal
leases." Generally such loans are unrated, in which case they will be determined
by the Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Portfolio. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of credit.
In other cases, they may be unsecured or may be secured by assets not easily
liquidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be marketable
only by virtue of a provision requiring repayment following demand by the
lender. Such loans made by a Portfolio may have a demand provision permitting
the Portfolio to require payment within seven days. Participations in such
loans, however, may not
7
<PAGE>
have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject to
each Portfolio's limitation on investments in illiquid securities. Recovery of
an investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand period,
normally seven days or less (unless a Portfolio determines that a particular
loan issue, unlike most such loans, has a readily available market). As it deems
appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal securities may include units of participation in trusts holding
pools of tax-exempt leases. Municipal participation interests may be purchased
from financial institutions, and give the purchaser an undivided interest in one
or more underlying municipal security. To the extent that municipal
participation interests are considered to be "illiquid securities," such
instruments are subject to each Portfolio's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein which
may take the form of a lease or an installment sales contract, are issued by
state and local governments and authorities to acquire a wide variety of
equipment and facilities. Interest payments on qualifying leases are exempt from
Federal income tax.
In addition, certain of the Portfolios 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
Portfolio's option specified Municipal Securities at a specified price. A
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes.
Although the Portfolios 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 Portfolio's total assets are invested in Municipal Securities
that are payable from the revenues of similar projects, a Portfolio 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.
When-Issued Securities
These securities involve the purchase of debt obligations on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of commitment to purchase. Nations Municipal Reserves will only
make commitments to purchase obligations on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date. When-issued securities are subject to market fluctuation, and
no interest accrues to the purchaser during the period between commitment and
purchase. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market when
the delivery takes place may actually be higher than those obtained in the
transaction itself. In that case there could be an unrealized loss at the time
of delivery.
8
<PAGE>
Segregated accounts will be established with the Custodian and will maintain
liquid assets in an amount at least equal in value to Nations Municipal
Reserves' commitments to purchase when-issued securities. If the value of these
assets declines, Nations Municipal Reserves will place additional liquid assets
in the account on a daily basis so that the value of the assets in the account
is equal to the amount of such commitments.
Foreign Securities
Nations Cash Reserves may invest in U.S. dollar denominated obligations of
securities of foreign issuers. Portfolio investments may consist of obligations
of foreign branches of U.S. banks and of foreign banks, including European
Certificates of Deposit, European Time Deposits, Canadian Time Deposits and
Yankee Certificates of Deposits, and investments in Canadian Commercial Paper,
foreign securities and Europaper.
Restricted Securities
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Certain of the permitted investments of the
Portfolios may be restricted securities and the Adviser may invest in restricted
securities based on guidelines which are the responsibility of and are
periodically reviewed by the Board of Trustees. Under these guidelines, the
Adviser will consider the frequency of trades and quotes for the security, the
number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
Adviser intends to purchase securities that are exempt from registration under
Rule 144A and Section 4(2) promulgated under the 1933 Act. The Portfolios may
purchase restricted securities that are illiquid subject to the Portfolio's
investment limitations on the purchase of illiquid securities.
THE ADVISER
Effective January 1, 1996, NationsBanc Advisors, Inc. ("NBAI") began serving as
investment adviser to the Portfolios of the Trust, pursuant to an Investment
Advisory Agreement dated January 1, 1996. Effective January 1, 1996, TradeStreet
Investment Associates, Inc. ("TradeStreet") began serving as sub-investment
adviser to the Portfolios of the Trust, pursuant to a Sub-Advisory Agreement
dated January 1, 1996. As used herein, "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, directors,
employees or agents, NBAI shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services under thereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
9
<PAGE>
The Investment Advisory Agreement shall become effective with respect to a
Portfolio if and when approved by the Trustees of the Trust, and if so approved,
shall thereafter continue from year to year, provided that such continuation of
the Agreement is specifically approved at least annually by (a) (i) the Trust's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of a Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and
(b) the affirmative vote of a majority of the Trust's Trustees who are not
parties to such Agreement or "interested persons" (as defined in the 1940 Act)
of a party to such Agreement (other than as Trustees of the Trust), by votes
cast in person at a meeting specifically called for such purpose.
The Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Portfolio at any time
without penalty by the Trust (by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio) or by NBAI on 60
days' written notice.
The Sub-Advisory Agreement provides that In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet or any of its officers, directors,
employees or agents, TradeStreet shall not be subject to liability to NBAI or to
the Trust for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
The Sub-Advisory Agreement shall become effective with respect to each Portfolio
as of its execution date and, unless sooner terminated, shall continue in full
force and effect for one year, and may be continued with respect to each
Portfolio thereafter, provided that the continuation of the Agreement is
specifically approved at least annually by (a) (i) the Trust's Board of Trustees
or (ii) the vote of "a majority of the outstanding voting securities" of a
Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of the Trust's Trustees who are not parties to
such Agreement or "interested persons" (as defined in the 1940 Act) of a party
to such Agreement (other than as Trustees of the Trust), by votes cast in person
at a meeting specifically called for such purpose.
The Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Portfolio at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Portfolio), or by NBAI, or by
TradeStreet on 60 days' written notice.
From May 1, 1994 (the "Transition Date") to January 1, 1996, NationsBank, N.A.
("NationsBank") served as investment adviser to the Portfolios pursuant to an
Investment Advisory Agreement dated May 1, 1994.
Prior to the Transition Date, ASB Capital Management, Inc. served as investment
adviser to the Portfolios pursuant to advisory agreements dated April 20, 1990
and October 1, 1993.
For the fiscal years ended April 30, 1993, 1994 and 1995, the Portfolios paid
advisory fees as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Expenses
Fees Waived Fees Fees Reimbursed
Fees Paid 1993 Fees Paid Waived Fees Paid Waived by Adviser
1993 1994 1994 1995 1995 1995*
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $266,475 $102,081 $346,549 $122,336 $489,346 $313,476 N/A
Nations Treasury
Reserves 0 174,445 271,241 853,421 982,941 840,932 N/A
Nations Gov't.
Reserves 75,143 55,257 717,571 124,273 434,684 248,859 N/A
Nations Municipal
Reserves 49,327 47,678 101,016 44,000 211,272 160,180 46,402
</TABLE>
* No expenses were reimbursed for 1993 or 1994.
ADMINISTRATOR AND CO-ADMINISTRATOR
Effective on the Transition Date, Stephens Inc. (the "Administrator")
began serving as administrator of the Trust and First Data Investor Services
Group, Inc. ("First Data"), formerly The Shareholder Services Group, Inc., a
wholly owned subsidiary of First Data Corporation, began serving as the
co-administrator of the Trust. Prior to the Transition Date, SEI Financial
Management Corporation served as sole administrator of the Trust.
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively. The Administrator receives, as
compensation for its services rendered under the Administration Agreement and as
agent for the Co-Administrator for the services it provides under the
Co-Administration Agreement, an administrative fee, computed daily and paid
monthly, at the annual rate of up to 0.10% of the average daily net assets of
each Portfolio.
Pursuant to the Administration Agreement, the Administrator has agreed to,
among other things, (i) maintain office facilities for the Portfolios, (ii)
furnish statistical and research data, data processing, clerical, and internal
executive and administrative services to the Trust, (iii) furnish corporate
secretarial services to the Trust, including coordinating the preparation and
distribution of materials for Board of Trustees meetings, (iv) coordinate the
provision of legal advice to the Trust with respect to regulatory matters, (v)
coordinate the preparation of reports to the Trust's shareholders and the
Securities and Exchange Commission ("SEC"), including annual and semi-annual
reports, (vi) coordinate the provision of services to the Trust by the
Co-Administrator, the Transfer Agent and the Custodian, and (vii) generally
assist in all aspects of the Trust's
11
<PAGE>
operations. Additionally, the Administrator
is authorized to receive, as agent for the Co-Administrator, the fees payable to
the Co-Administrator by the Trust for its services rendered under the
Co-Administration Agreement. The Administrator bears all expenses incurred in
connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has
agreed to, among other things, (i) provide accounting and bookkeeping services
for the Portfolios, (ii) compute each Portfolio's net asset value and net
income, (iii) accumulate information required for the Trust's reports to
shareholders and the SEC, (iv) prepare and file the Trust's federal and state
tax returns, (v) perform monthly compliance testing for the Trust, and (vi)
prepare and furnish the Trust monthly broker security transaction summaries and
transaction listings and performance information. The Co-Administrator bears all
expenses incurred in connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Trust or its shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
For the fiscal years ended April 30, 1993, 1994 and 1995 the Portfolios paid
administrative fees as follows:
12
<PAGE>
<TABLE>
<CAPTION>
Fees Fees Fees
Fees Paid Waived Fees Paid Waived Fees Paid Waived
1993 1993 1994 1994 1995 1995
------- -------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $110,208 $ 51,040 $132,621 $ 47,375 $163,115 $ 62,214
Nations Treasury
Reserves 0 81,346 104,745 327,406 327,647 129,132
Nations Government
Reserves 33,431 27,629 273,815 48,921 144,895 59,241
Nations Municipal
Reserves 28,929 23,838 39,030 16,766 70,424 25,622
</TABLE>
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500, Washington,
D.C. 20006-1812.
TRUSTEES AND OFFICERS
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and the officers of the Trust and their principal occupations for the
last five years are set forth below.
<TABLE>
<CAPTION>
Position Principal Occupation During Past 5 Years
Name and Address With Trust and Other Affiliations
<S> <C> <C>
Edmund L. Benson, III, 59 Trustee Director, President and Treasurer,
728 East Main Street Saunders & Benson, Inc. (insurance agency).
Suite 400
Richmond, VA 23219
James Ermer, 53 Trustee November, 1986, Director, National Mine
CSX Corporation Service; since October 1985, Senior Vice
One James Center President - Finance, CSX Corporation
901 East Cary Street (transportation and natural resources
Richmond, VA 23219 company); Director, Lawyers Title
Corporation.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
William H. Grigg, 63 Trustee Since April 1994, Chairman and Chief
Duke Power Company Executive Officer; November 1991 to April
422 South Church Street 1994; Vice Chairman; April 1988 to
PB04G November 1991, Executive Vice
Charlotte, NC 28242-0001 President-Customer Group; before April
1988, Executive Vice President-Finance &
Administration, Duke Power Co.; Director,
Duke Power Co.; Director, Hatteras Income
Securities, Inc.
Thomas F. Keller, 64 Trustee R.J. Reynolds Industries Professor of
Fuqua School of Business Business Administration and Dean, Fuqua
Duke University School of Business, Duke University;
Durham, NC 27706 Director, LADD Furniture, Inc., Hatteras
Income Securities, Inc. (investment
company); Wendy's International, Mentor
Growth Fund, and Cambridge Trust.
Carl E. Mundy, Jr., 60 Trustee Commandant, United States Marine Corps,
9308 Ludgate Drive from July 1991 to July 1995, Commanding
Alexandria, VA 23309 General, Marine Forces Atlantic, from June
1990 to June 1991
A. Max Walker*, 74 Trustee and President Financial consultant; Director and
4580 Windsor Gate Court Chairman, Hatteras Income Securities, Inc.
Atlanta, GA 30342 (investment company). Formerly,
President, A. Max Walker, Inc.
Charles B. Walker, 57 Trustee Since February 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial Officer
330 South Fourth Street and Treasurer, March 1984-February 1989,
P.O. Box 2189 Vice President and Treasurer, Ethyl
Richmond, VA 23217 Corporation (chemicals, plastics, and
aluminum manufacturing); Director, R.F.&
P. Railroad; Trustee, Paragon Portfolio
(another registered investment company).
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas S. Word, Jr.*, 57 Trustee Partner of the law firm McGuire Woods
McGuire Woods Battle & Boothe Battle & Boothe, Richmond, Virginia.
One James Center
Richmond, VA 23219
Richard H. Blank, Jr., 39 Secretary Associate of Financial Services Group of
Stephens Inc. Stephens Inc.; Director of Stephens Sports
111 Center Street Management, Inc.; Director of Capo Inc.
Little Rock, AR 72201
Richard H. Rose, 40 Treasurer Senior Vice President and Assistant
First Data Investor Services Group, Treasurer, The Boston Company Advisors,
Inc. Inc. since February 1988. Formerly,
One Exchange Place Senior Audit Manager with Peat, Marwick
Boston, MA 02109 Main & Company.
Joseph C. Viselli, 32 Assistant Treasurer Assistant Vice President, The Boston
First Data Investor Services Group, Company Advisors, Inc. since April 1992.
Inc. Formerly, Senior Accountant with Price
One Exchange Place Waterhouse and Accountant with Fidelity
Boston, MA 02109 Investments
Michael W. Nolte, 35 Assistant Secretary Associate of Financial Services Group of
Stephens Inc. Stephens Inc.
111 Center Street
Little Rock, AR 72201
Louise P. Newcomb, 43 Assistant Secretary Corporate Syndicate Associate, Stephens
Stephens Inc. Inc.
111 Center Street
Little Rock, AR 72201
James E. Banks, 40 Assistant Secretary Attorney, Stephens Inc.; Associate
Stephens Inc. Corporate Counsel, Federated Investors;
111 Center Street Staff Attorney, Securities and Exchange
Little Rock, AR 72201 Commission
</TABLE>
- --------------------
* A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.
15
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Compensation
from Registrant
Aggregate and Fund Nations Fund
Compensation Complex Paid Nations Fund Deferred
Name of Person from to Directors(3) Retirement Compensation
Position (1) Registrant (2) Plan Plan
----------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, Trustee $7,000 $36,500 N/A $4,606.14
James Ermer 7,000 36,500 N/A N/A
Trustee
William H. Grigg 7,000 36,500 N/A 9,212.28
Trustee
Thomas F. Keller 7,000 36,500 N/A 9,212.28
Trustee
A. Max Walker 9,000 42,500 N/A N/A
Chairman of the Board
Charles B. Walker 7,000 36,500 N/A N/A
Trustee
Thomas S. Word 7,000 36,500 N/A 9,212.28
Trustee
Carl E. Mundy, Jr. 7,000 N/A N/A N/A
Trustee
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no direct
remuneration in such capacity from the Trust.
(2) For current fiscal year and includes estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Portfolio of the Trust, plus (ii) a fee of $1,000 for
attendance at each in-person board meeting attended and $500 for each
telephonic board meeting attended. The Trust also reimburses expenses incurred
by the Trustees in attending such meetings.
16
<PAGE>
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including Nations Fund, Inc. (the "Company") and Nations
Fund Trust (the "Trust"), that are deemed to be part of the Nations Fund "fund
complex," as that term is defined under Rule 14a-101 of the Securities Exchange
Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker, Mundy and Word
receive compensation from four investment companies, including the Company and
the Trust, deemed to be part of the Nations Fund complex.
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data or its affiliates serve as sponsor, distributor, administrator
and/or investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations
Fund Portfolios, Inc. and a Trustee of Nations Fund Trust, separate registered
investment companies that are part of the Nations Fund family of funds. Richard
H. Blank, Jr., Richard H. Rose, Joseph C. Viselli, Michael W. Nolte, Louise P.
Newcomb and James E. Banks also are officers of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations Fund Trust. William H. Grigg, Thomas F. Keller and
A. Max Walker are also on the Boards of Directors for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and The Managed Balanced Target Maturity Fund, Inc.
closed-end management investment companies.
Currently, each Trustee receives $1,000 in compensation for attendance at
each Board of Trustees meeting. For the fiscal year ended April 30, 1995, the
Trust paid its Trustees $29,796, as compensation and as reimbursement for
expenses related to attendance at Board of Trustees meetings. Mr. Mundy was not
a Trustee of the Trust during the fiscal year ended April 30, 1995 and therefore
received no compensation.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
shareholder reports to Shareholders of record.
INVESTMENT LIMITATIONS
Fundamental Investment Limitations:
A Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
17
<PAGE>
3. Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding one-third of the value of total assets. Any
borrowing will be done from a bank and to the extent that such borrowing
exceeds 5% of the value of the Portfolio's assets, asset coverage of at
least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Portfolio shall, within three days thereafter or
such longer period as the SEC may prescribe by rules and regulations,
reduce the amount of its borrowings to such an extent that the asset
coverage of such borrowings shall be at least 300%. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate heavy redemption requests if they should occur
and is not for investment purposes. All borrowings will be repaid before
making additional investments and any interest paid on such borrowings
will reduce income.
4. Make loans, except that (a) a Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies; (b)
may enter into repurchase agreement and non-negotiable time deposits,
provided that repurchase agreements and non-negotiable time deposits
maturing in more than seven days, illiquid securities and other securities
which are not readily marketable are not to exceed, in the aggregate, 10%
of the Portfolio's total assets and (c) the Portfolios (except Nations
Municipal Reserves) may engage in securities lending as described in each
prospectus and in this SAI.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10%
of total assets taken at current value at the time of the incurrence of
such loan, except as permitted with respect to securities lending.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a Portfolio security.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder and may only
purchase securities of other money market funds. Under these rules and
regulations, the Portfolios are prohibited from acquiring the securities
of other investment companies if, as a result of such acquisition, the
Portfolios own more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5% of
the Portfolio's total assets; or securities (other than treasury stock)
issued by all investment companies represent more than 10% of the total
assets of the Portfolio. These investment companies typically incur fees
that are separate from those fees incurred directly by the Portfolio. A
Portfolio's purchase of such investment company securities results in the
layering of expenses, such that Shareholders
18
<PAGE>
would indirectly bear a
proportionate share of the operating expenses of such investment
companies, including advisory fees. It is the position of the Securities
and Exchange Commission's Staff that certain nongovernmental issues of
CMOs and REMICS constitute investment companies pursuant to the 1940 Act
and either (a) investments in such instruments are subject to the
limitations set forth above or (b) the issuers of such instruments have
received orders from the SEC exempting such instruments from the
definition of investment company.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or Adviser of
the Trust owns beneficially more than 1/2 of 1% of the shares or
securities of such issuer and all such officers, trustees, partners and
directors owning more than 1/2 of 1% of such shares or securities together
own more than 5% of such shares or securities.
12. Invest in interest in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. Write or purchase puts, calls or combinations thereof, except that Nations
Cash Reserves and Nations Treasury Reserves may write covered call options
with respect to any or all parts of that Portfolio's securities and
purchase put options if that Portfolio owns the security covered by the
put option at the time of purchase, and that premiums paid on all put
options outstanding do not exceed 2% of its total assets. Such Portfolios
may sell options previously purchased and enter into closing transactions
with respect to covered call and put options. Such Portfolios may also
write call options and purchase put options on stock indices and enter
into closing transactions with respect to such options. Nations Cash
Reserves and Nations Treasury Reserves will not invest more than 5% of
their total assets in puts, calls or combinations thereof.
14. Invest in warrants valued at lower of cost or market exceeding 5% of the
Portfolio's net assets. Included in that amount but not to exceed 2% of
the Portfolio's net assets, may be warrants not listed on the New York
Stock Exchange or American Stock Exchange.
Non-Fundamental Investment Limitations:
1. Nations Treasury Reserves may not write covered call options or purchase
put options as long as the Portfolio invests exclusively in U.S. Treasury
obligations, separately traded component parts of such obligations
transferable through the Federal book-entry system, and repurchase
agreements involving such obligations.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security.
19
<PAGE>
SECURITIES LENDING
To increase return on portfolio securities, All of the Portfolios, except
Nations Municipal Reserves, may lend their portfolio securities to
broker/dealers and other institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. Collateral
for such loans may include cash, securities of the U.S. Government, its agencies
or instrumentalities, an irrevocable letter of credit issued by (i) a U.S. bank
that has total assets exceeding $1 billion and that is a member of the Federal
Deposit Insurance Corporation, or (ii) a foreign bank that is one of the 75
largest foreign commercial banks in terms of total assets, or any combination
thereof. Such loans will not be made if, as a result, the aggregate of all
outstanding loans of the Portfolio involved exceeds one-third of the value of
its total assets taken at fair market value. A Portfolio will continue to
receive interest on the securities lent while simultaneously earning interest on
the investment of the cash collateral in U.S. government securities. However, a
Portfolio will normally pay lending fees to such broker/dealers and related
expenses from the interest earned on investment collateral. Any loan may be
terminated by either party upon reasonable notice to the other party.
There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
Pursuant to the securities loan agreement a Portfolio is able to terminate the
securities loan upon notice of not more than five business days and thereby
secure the return to the Portfolio of securities identical to the transferred
securities upon termination of the loan.
PERFORMANCE INFORMATION
From time to time the Portfolios advertise their "current yield" and "effective
compound yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Portfolios refers to
the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated 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
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The current yield of the Portfolios will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
20
<PAGE>
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Portfolios is determined by computing the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = [(Base Period Return + 1) 365/7)]- 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The yield of these Portfolios fluctuates, and the annualization of a week's
dividend is not a representation by the Trust as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as asset quality, average asset maturity, the type of instruments the
Portfolio invests in, changes in interest rates on money market instruments,
changes in the expenses of the Portfolio and other factors.
The "tax equivalent yield" of Nations Municipal Reserves is calculated by
determining the rate of return that would have to be achieved on a fully taxable
investment to produce the after-tax equivalent of the Portfolio's yield,
assuming certain tax brackets for a Shareholder. Tax-exempt yield is calculated
according to the same formula except that a = interest exempt from federal
income tax earned during the Period. This tax-exempt yield is then translated
into tax-equivalent yield according to the following formula:
TAX-EQUIVALENT YIELD = ( E ) + t
-------
1 - p
E = tax-exempt yield
p = stated income tax rate
t = taxable yield
Yields are one basis upon which investors may compare the Portfolios with other
money market funds; however, yield of other money market funds and other
investment vehicles may not be comparable because of the factors set forth above
and differences in the methods used in valuing portfolio instruments.
Nations Cash Reserves may quote actual return performance in advertising and
other types of literature compared to indices or averages of alternative
financial products available to prospective investors. The performance
comparisons may include the average return of various bank instruments, some of
which may carry certain return guarantees offered by leading banks and thrifts,
as monitored by the Bank Rate Monitor, and those of corporate and government
security
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prices indices of various durations prepared by Shearson Lehman
Brothers and Salomon Brothers, Inc. These indices are not managed for any
investment goal.
The Portfolios also may use comparative performance information computed by and
available from certain industry and general market research and publications,
such as Lipper Analytical Services, Inc.
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used. CDA is a
performance evaluation service that maintains a statistical data base of
performance, as reported by a diverse universe of independently-managed mutual
funds. Interactive Data Corporation is a statistical access service that
maintains a data base of various industry indicators, such as historical and
current price/earning information and individual stock and fixed income price
and return information.
Current interest rate and yield information on governmental debt obligations of
various durations, as reported weekly by the Federal Reserve (Bulletin H.15),
may also be used. Also current rate information on municipal debt obligations or
various durations, as reported daily by the Bond Buyer, may also be used. The
Bond Buyer is published daily and is an industry accepted source for current
municipal bond market information.
Comparative information on the Consumer Price Index may also be included. This
index, as prepared by the U.S. Bureau of Labor Statistics, is the most commonly
used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return on
investment.
For the 7-day period ended April 30, 1995, the yield of each Portfolio was as
follows:
<TABLE>
<CAPTION>
Effective
Yield Yield Tax
Effective Without Without Equivalent
Yield Yield Fee Waivers Fee Waivers Yield
<S> <C> <C> <C> <C> <C>
Nations Cash Reserves
Capital Class 6.05% 6.22% 5.84% 6.01% N/A
Liquidity Class 5.90% 6.06% 5.69% 5.85% N/A
Adviser Class 5.80% 5.96% 5.59% 5.75% N/A
Nations Treasury Reserves
Capital Class 5.86% 6.02% 5.58% 5.74% N/A
Liquidity Class 5.71% 5.86% 5.43% 5.58% N/A
Adviser Class 5.60% 5.75% 5.32% 5.47% N/A
Nations Government Reserves
Capital Class 5.95% 6.11% 5.75% 5.91% N/A
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Liquidity Class 5.70% 5.85% 5.50% 5.65% N/A
Adviser Class 5.60% 5.75% 5.40% 5.55% N/A
Nations Municipal Reserves
Capital Class 4.33% 4.42% 4.06% 4.15% N/A
Liquidity Class 4.18% 4.26% 3.91% 3.99% N/A
Adviser Class 4.08% 4.16% 3.81% 3.89% N/A
</TABLE>
Market Class Shares of the Portfolios were not offered during the period ended
April 30, 1995. The yield of the Liquidity Class, Adviser Class and Market Class
Shares of each Portfolio will normally be lower than the yield of the Capital
Class Shares because Liquidity Class, Adviser Class and Market Class Shares are
subject to distribution and/or shareholder servicing expenses not charged to
Capital Class Shares.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by the Distributor or the Transfer Agent. A
purchase order must be received by the Distributor or the Transfer Agent by 3:00
p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves). A purchase order received after such time will not be accepted;
notice thereof will be given to the institution placing the order and any funds
received will be returned promptly to the sending institution. If federal funds
are not available by the close of regular trading on the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., Eastern time), the order will be
canceled. The purchase price is the net asset value per share next determined
after acceptance of the order by the Distributor or the Transfer Agent.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within five Business Days after receiving a redemption
order if, in the judgment of the NationsBank, an earlier payment could adversely
impact a Portfolio. Redemption orders will not be accepted by the Distributor or
the Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves) for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by the Distributor or the Transfer Agent.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of each Portfolio
next determined after receipt by the Distributor of the redemption order.
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<PAGE>
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of a Portfolio for any period during which the Exchange, NationsBank, the
Distributor, the Administrator, the Co-Administrator, and/or the Custodian are
not open for business.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
Liquidity Class Shares and Market Class Shares
The Trust has adopted a distribution plan (the "Liquidity Class Plan") for
Liquidity Class Shares and a distribution plan (the "Market Class Plan") for the
Market Class Shares of the Portfolios (collectively, the "Distribution Plans")
in accordance the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of each of the
Distribution Plans must be approved annually by a majority of the Trustees of
the Trust and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). Each Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and the purposes
of such expenditures be furnished to and reviewed by the Trustees. The Liquidity
Class Plan may not be amended to increase materially the amount which may be
spent thereunder without approval by a majority of the outstanding Liquidity
Class Shares of the Trust. The Market Class Plan may not be amended to increase
materially the amount which may be spent thereunder without approval by a
majority of the outstanding Market Class Shares of the Trust. All material
amendments of a Distribution Plan will require approval by a majority of the
Trustees and of the Qualified Trustees.
Liquidity Class Shares of each Portfolio bear the costs of their distribution
fees as provided in a budget approved annually and reviewed quarterly by the
Trustees of the Trust, including those Trustees who are not interested persons
and have no financial interest in the Liquidity Class Plan or any related
agreements. The budget will be in an amount not to exceed .30% of the average
daily net assets of Liquidity Class Shares of each Portfolio and the Distributor
will be reimbursed only for its actual expenses incurred during a fiscal year.
The Distributor will also receive an additional fee of up to .30% of the average
daily net assets of Liquidity Class Shares of each Portfolio (.35% with respect
to Nations Treasury Reserves) which the Distributor can use to compensate
certain financial institutions which provide administrative and/or distribution
related services to Liquidity Class shareholders. These services may include
establishing and maintaining customer accounts and records; aggregating and
processing purchase and redemption requests from customers; placing net purchase
and redemption orders with the Distributor or transfer agent; automatically
investing customer account cash balances; providing periodic statements to
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<PAGE>
customers; arranging for wires; answering customer inquiries concerning their
investments; assisting customers in changing dividend options, account
designations, and addresses; performing sub-accounting functions; processing
dividend payments from a Trust on behalf of customers; and forwarding
shareholder communications from the Trust (such as proxies, shareholder reports,
and dividend distribution, and tax notices) to these customers with respect to
investments in the Trust. It is possible that an institution may offer different
classes of Shares to its customers and thus receive different compensation with
respect to different classes of Shares.
Pursuant to the Market Class Plan, a Portfolio may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of a Portfolio's Market Class Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Market Class Shares with
the Distributor ("Selling Agents"). Payments under a Portfolio's Market Class
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Board of Trustees provided that the annual rate may not exceed
0.20% of the average daily net asset value of each Portfolio's Market Class
Shares.
The fees payable under the Market Class Plan are used primarily to compensate or
reimburse the Distributor for distribution services provided by it, and related
expenses incurred, including payments by the Distributor to compensate or
reimburse Selling Agents, for sales support services provided, and related
expenses incurred, by such Selling Agents. Payments under the Market Class Plan
may be made with respect to (i) preparation, printing and distribution of
prospectuses, sales literature and advertising materials by the Distributor or,
as applicable, Selling Agents, attributable to distribution or sales support
activities, respectively; (ii) commissions, incentive compensation or other
compensation to, and expenses of, account executives or other employees of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; (iii) overhead and other office expenses of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; (iv) opportunity costs relating to the foregoing
(which may be calculated as a carrying charge in the Distributor's or Selling
Agents' unreimbursed expenses incurred in connection with distribution or sales
support activities, respectively); and (v) 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 the Distributor's or Selling Agents' offices in connection with the
sale of Portfolio shares, including lease costs, the salaries and employee
benefit costs of administrative, operations and support personnel, utility
costs, communication costs and the costs of stationery and supplies, (ii) the
costs of client sales seminars and travel related to distribution and sales
support activities, and (iii) other expenses relating to distribution and sales
support activities.
In addition, the Trustees have approved Shareholder Servicing Plans with respect
to Liquidity Class Shares and Market Class Shares of the Portfolios (the
"Servicing Plans"). Pursuant to the Servicing Plans, a Portfolio may compensate
or reimburse banks, broker/dealers or other financial institutions that have
entered into Shareholder Servicing Agreements with the Trust ("Servicing
Agents") for certain activities or expenses of the Servicing Agents in
connection with shareholder services that are provided by the Servicing Agents.
The Servicing Plan adopted on behalf of the
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<PAGE>
Liquidity Class Shares provides that
payments under the Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Trustees, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Liquidity Class Shares of each Portfolio. The Servicing Plan adopted on behalf
of the Market Class Shares provides that payments under the Servicing Plan will
be paid at a rate or rates set from time to time by the Board of Trustees,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Market Class Shares beneficially owned by the Servicing
Agents' clients.
The fees payable under the Servicing Plans 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 under the Servicing Plans may include: (i) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(iii) processing dividend and distribution payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in shares; (v) arranging for bank wires; (vi) responding to customers'
inquiries concerning their investment in shares; (vii) providing sub-accounting
with respect to shares beneficially owned by customers or providing the
information to the Trust necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plans or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Trust may reasonably request to the
extent such Servicing Agents are permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Liquidity Class Plan and Liquidity Class Servicing
Plan (together, the "Liquidity Class Plans") are treated by the Portfolios as an
expense in the year they are accrued. At any given time, a Selling Agent and/or
Servicing Agent may incur expenses in connection with services provided pursuant
to its agreements with the Distributor and/or the Trust under the Liquidity
Class Plans which exceed the total of the payments made to the Selling Agents
and/or Servicing Agents by the Distributor or the Trust and reimbursed by the
Portfolios pursuant to the Liquidity Class Plans. Any such excess expenses may
be recovered in future years, so long as the Liquidity Class Plans are in
effect. Because there is no requirement under the Liquidity Class Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Liquidity Class
Plans be continued from year to year, such excess amount, if any, does not
constitute a liability to a Portfolio, or the Distributor, or the Trust.
Although there is no legal obligation for the Portfolio to pay expenses incurred
by the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Liquidity Class Plans if for any
reason the Liquidity Class Plans are terminated, the Trustees will consider at
that time the manner in which to treat such expenses.
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<PAGE>
For the fiscal year ended April 30, 1995, the distribution expenses incurred by
the Liquidity Class Shares of the Portfolios were as follows: Nations Cash
Reserves - $13,206; Nations Treasury Reserves - $9,486; Nations Municipal
Reserves - $3,609; and Nations Government Reserves - $58,948. Such distribution
expenses for each Portfolio were attributable to the cost of marketing the
Portfolios. No expenses were incurred under the Liquidity Class Servicing Plan
during the fiscal year ended April 30, 1995.
Each of the Shareholder Servicing Plan with respect to the Market Class Shares
and the Market Class Plan (collectively, the "Plans") will continue in effect
only so long as such continuance is approved at least annually by (i) a majority
of the Board of Trustees, and (ii) a majority of the Qualified Trustees,
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the Plan. Each Plan may not be amended to increase materially the amount
which may be spent thereunder without approval of a majority of the outstanding
Shares of such Portfolio. All material amendments to a Plan require the approval
of a majority of the Board of Trustees and the Qualified Trustees. The Plans
require that quarterly written reports of the amounts spent under the Plans and
the purposes of such expenditures be furnished to, and reviewed by, the
Trustees.
Adviser Class
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Shareholder
Servicing Plan for the Adviser Class Shares of each Portfolio (the "Adviser
Class Servicing Plan"). Under the Adviser Class Servicing Plan, the Trust may
enter into Shareholder Servicing Agreements with broker/dealers, banks and other
financial institutions ("Servicing Agents") pursuant to which the Servicing
Agents will provide shareholder support services to their customers who
beneficially own Adviser Class Shares in the Portfolios. The Adviser Class
Servicing Plan permits the Trust to pay Servicing Agents a fee not exceeding
0.25% of the average daily net asset value of the Adviser Class Shares
beneficially owned by the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the Adviser
Class Servicing Plan may include: (i) aggregating and processing purchase and
redemption requests for such Adviser Class Shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in such Adviser Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Trust on behalf of customers; (iv) providing information periodically
to customers showing their positions in such Adviser Class Shares; (v) arranging
for bank wires; (vi) responding to customers' inquiries concerning their
investment in such Adviser Class Shares; (vii) providing sub-accounting with
respect to such Adviser Class Shares beneficially owned by customers or the
information necessary for sub-accounting; (viii) if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (ix) forwarding to customers proxy statements and proxies containing
any proposals regarding the Adviser Class Servicing Plan or related agreements;
(x) general shareholder liaison services; and (xi) providing such other similar
services as the Trust reasonably request to the extent the Servicing Agents are
permitted to do so under applicable statutes, rules or regulations.
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<PAGE>
The Adviser Class Servicing Plan also provides that to the extent any portion of
the fees payable under such Plan is deemed to be for services primarily intended
to result in the sale of Portfolio shares, such fees are deemed approved and may
be paid pursuant to the Servicing Plan and in accordance with Rule 12b-1 under
the 1940 Act.
For the fiscal year ended April 30, 1995 the Portfolios paid 12b-1 fees to
Stephens and shareholder servicing fees to NationsBank for Liquidity Class
Shares and Adviser Class Shares in the following amounts:
<TABLE>
<CAPTION>
Portfolios Stephens NationsBank Total
<S> <C> <C> <C>
Nations Cash Reserves Liquidity Class $13,206.00 $ 0.00 $13,206.00
Nations Cash Reserves Adviser Class 0.00 56,057.00 56,057.00
Nations Government Reserves
Liquidity Class 58,948.00 0.00 58,948.00
Nations Government Reserves
Adviser Class 0.00 157,228.00 157,228.00
Nations Treasury Reserves
Liquidity Class 9,486.00 0.00 9,486.00
Nations Treasury Reserves
Adviser Class 0.00 68,443.00 68,443.00
Nations Municipal Reserves
Liquidity Class 3,609.00 0.00 3,609.00
Nations Municipal Reserves
Adviser Class 0.00 81,350.00 81,350.00
</TABLE>
The Adviser Class Servicing Plan will continue in effect only so long as such
continuance is approved at least annually by (i) a majority of the Board of
Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a vote cast
in person at a meeting called for the purpose of voting on the Adviser Class
Servicing Plan. The Adviser Class Servicing Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Adviser Class Shares of such Portfolio. All material
amendments to the Adviser Class Servicing Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Adviser Class
Servicing Plan requires that quarterly written reports of the amounts spent
under the Adviser Class Servicing Plan and the purposes of such expenditures be
furnished to, and reviewed by, the Trustees.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolios will be determined as of 3:00
p.m., Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each day the Exchange is open for business.
Net asset value per share of each Portfolio is calculated by adding the value of
its securities and other assets, subtracting its liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method pursuant to Rule 2a-7 under the 1940 Act, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by this
method, is higher or lower than the price each Portfolio would receive if it
sold the instrument. During periods of declining interest rates, the daily yield
of each Portfolio may tend to be higher than a like computation made by a
company with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by each Portfolio resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
each Portfolio would be able to obtain a somewhat higher yield than would result
from investment in a company utilizing solely market values, and existing
investors in each Portfolio would experience a lower yield.
The converse would apply in a period of rising interest rates.
The Portfolios use of amortized cost and the maintenance of the Portfolios net
asset value at $1.00 are permitted by regulations promulgated by the SEC under
the 1940 Act, provided that certain conditions are met. The Trust will maintain
a dollar-weighted average maturity in the Portfolios of 90 days or less, will
not purchase any instrument having a remaining maturity of more than 397 days,
and will limit its investments to those U.S. dollar-denominated instruments
which are permitted investments under SEC regulations. The regulations also
require the Trustees to establish procedures which are reasonably designed to
stabilize the net asset value per share at $1.00 for the Portfolios. Such
procedures include the determination of the extent of deviation, if any, of the
Portfolios current net asset value per share calculated using available market
quotations from the Portfolios amortized cost price per share at such intervals
as the Trustees deem appropriate and reasonable in light of market conditions
and periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that such deviation exceeds 1/2 of 1%,
the Trustees are required to consider promptly what action, if any, should be
initiated, and, if the Trustees believe that the extent of any deviation may
result in material dilution or other unfair results to Shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. Such actions may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; or establishing a net
asset value per share by using available market quotations. In addition, if the
Portfolios incur a significant loss or liability, the Trustees have the
authority to reduce pro rata the number of shares of the Portfolios in each
Shareholder's account and to offset each Shareholder's pro rata portion of such
loss or liability from the
29
<PAGE>
Shareholder's accrued but unpaid dividends or from
future dividends while each other Portfolio must annually distribute at least
90% of its investment company taxable income.
TAXES
The following is only a summary of certain tax considerations generally
affecting a Portfolio and its Shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this SAI. New legislation, certain
administrative changes or court decisions may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
As of the date of this Statement of Additional Information, the maximum marginal
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax rate
applicable to ordinary income and net capital gains is 35% (except that
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000).
In addition, the alternative minimum tax rate for noncorporate taxpayers is 26%
on taxable excess (alternative minimum taxable income, less the applicable
exemption amount) up to $175,000. The alternative minimum tax rate on taxable
excess exceeding $175,000 is 28%. The corporate alternative minimum tax rate is
20%.
It is the policy of each of the Trust's Portfolios to qualify for the favorable
tax treatment accorded a regulated investment company ("RIC") as defined under
Subchapter M of the Code. By following such policy, each of the Trust's
Portfolios expects to eliminate or reduce to a nominal amount the federal taxes
to which such Portfolio may be subject. In order to qualify for treatment as a
RIC under the Code, each Portfolio must distribute annually to its Shareholders
at least the sum of 90% of its net interest income excludable from gross income
plus 90% of its investment company taxable income (generally, net investment
income plus net short-term capital gain) ("Distribution Requirement") and also
must meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Portfolio's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition
30
<PAGE>
of stock or securities, or
certain other income, (ii) the Portfolio must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months; (iii) at the close of each quarter
of the Portfolio's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Portfolio's assets and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (iv) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
Notwithstanding the Distribution Requirement described above, which only
requires a Portfolio to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Portfolio will be subject to a nondeductible 4% Federal excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and substantially all of its capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
Additional Considerations for Nations Municipal Reserves:
As noted in the Prospectuses for Nations Municipal Reserves, exempt interest
dividends by such Portfolio are excludable from a Shareholder's gross income for
regular Federal income tax purposes. Exempt-interest dividends may nevertheless
be subject to the alternative minimum tax (the "Alternative Minimum Tax")
imposed by Section 55 of the Code or the environmental tax (the "Environmental
Tax") imposed by Section 59A of the Code. The Alternative Minimum Tax is imposed
at the maximum marginal rate of 28% in the case of non-corporate taxpayers and
at the rate of 20% in the case of corporate taxpayers, to the extent it exceeds
the taxpayer's regular tax liability. The Environmental Tax is imposed at the
rate of 0.12% and applies only to corporate taxpayers. The Alternative Minimum
Tax and the Environmental Tax may be imposed in two circumstances. First,
exempt-interest dividends derived from certain "private activity bonds" issued
after August 7, 1986, will generally be an item of tax preference (and therefore
potentially subject to the Alternative Minimum Tax for both corporate and
non-corporate taxpayers and the Environmental Tax for corporate taxpayers).
Second, in the case of exempt-interest dividends received by corporate
Shareholders, all exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they are derived from private
activity bonds, will be included in the corporation's "adjusted current
earnings," as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining the
Alternative Minimum Tax and the Environmental Tax.
Any gain or loss recognized on a sale or redemption of Shares of the Portfolio
by a Shareholder who is not a dealer in securities will generally be treated as
a long-term capital gain or loss if the shares have been held for more than
twelve months and otherwise will be generally treated as a short-term capital
gain or loss. Any loss recognized by a Shareholder upon the sale or redemption
of units of the Portfolio held for six months or less, however, will be
disallowed to the extent of any exempt-interest dividends received by the
Shareholder with respect to such shares. If shares on which a net capital gain
distribution has been received are subsequently sold or redeemed and
31
<PAGE>
such shares
have been held for six months or less, any loss recognized will be treated as a
long term capital loss to the extent of the long-term capital gain distribution.
Interest on indebtedness incurred by Shareholders to purchase or carry shares of
the Portfolio will not be deductible for Federal income tax purposes. The
deduction otherwise allowable to property and casualty insurance companies for
"losses incurred" will be reduced by an amount equal to a portion of
exempt-interest dividends received or accrued during any taxable year. Foreign
corporations engaged in a trade or business in the United States will be subject
to a "branch profits tax" on their "dividend equivalent amount" for the taxable
year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. Up to one-half of the Social
Security benefits or railroad retirement benefits received by an individual
during any taxable year will be included in the gross income of such individual
if the individual's "modified adjusted gross income" (which includes
exempt-interest dividends) plus one-half of the Social Security benefits or
railroad retirement benefits received by such individual during that taxable
year exceeds the base amount described in Section 86 of the Code.
The Portfolio may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
entities or persons should consult their tax advisors before purchasing shares
of the Portfolio.
Issuers of bonds purchased by the Portfolio (or the beneficiary of such bonds)
may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
Federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
State Taxes
A Portfolio is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for Federal income tax purposes. Distributions by the
Portfolios to Shareholders and the ownership of shares may be subject to state
and local taxes. Therefore, shareholders are urged to consult with their tax
advisors concerning the application of state and local taxes to investments in
the Portfolios, which may differ from the Federal income tax consequences.
Depending upon applicable state and local law, Shareholders of Nations Municipal
Reserves may be exempt from state and local taxes on distributions of tax-exempt
interest income derived from obligations of the state and/or municipalities in
which they reside, but Shareholders of that Portfolio may be subject to tax on
income derived from obligations of other jurisdictions. The Portfolio will make
periodic reports to Shareholders of the source of distributions on a
state-by-
32
<PAGE>
state basis. Shareholders are urged to consult with their tax advisors
regarding whether, and under what conditions such exemption is available.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Adviser is responsible for placing the orders
to execute transactions for the Portfolios. In placing orders, it is the policy
of the Trust to seek to obtain the best net results taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved. While the Adviser generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available.
The money market securities in which the Portfolios invest are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
The Trust does not expect to use one particular dealer, but subject to the
Trust's policy of seeking the best net results, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Investment Advisory
Agreement, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information.
The Portfolios may execute brokerage or other agency transactions through
affiliated persons for a commission, in conformity with the 1940 Act, the
Securities Exchange Act of 1934 and rules of the SEC. These rules require that
commissions paid to the affiliated person by the Trust for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to such affiliated persons and will review these procedures
periodically.
During its fiscal years ended April 30, 1995, 1994 and 1993, the Trust paid $0,
$0 and $182,593 in aggregate brokerage commissions.
33
<PAGE>
During the period ended April 30, 1995, certain Portfolios acquired securities
of companies which are either among the Trust's "regular brokers or dealers" or
parents of its "regular brokers or dealers." "Regular brokers or dealers" are
the ten brokers or dealers that, during the most recent fiscal year, (i)
received the greatest dollar amounts of brokerage commissions from the Trust's
portfolio transactions, (ii) engaged as principal in the largest dollar amounts
of portfolio transactions of the Trust, or (iii) sold the largest dollar amount
of the Trust's shares. At April 30, 1995, Nations Cash Reserves held securities
of such companies as follows:
$7,903,680 of commercial paper of Bankers Trust New York Corporation.
CUSTODIAN AND TRANSFER AGENT
Effective May 1, 1994, NationsBank of Texas, N.A., began serving as custodian
("Custodian") for the securities and cash of each Portfolio. As custodian,
NationsBank of Texas, N.A., maintains custody of the Portfolios' securities,
cash and other property, delivers securities against payment upon sale and pays
for securities against delivery upon purchase, makes payments on behalf of the
Portfolios for payments of dividends, distributions and redemptions, endorses
and collects on behalf of the Portfolios all checks, and receives all dividends
and other distributions made on securities owned by the Portfolios. For such
services, NationsBank of Texas, N.A., is entitled to receive, in addition to
out-of-pocket expenses, fees, payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of the Portfolios' investments, (ii) $10.00 per
repurchase collateral transaction by each Portfolio, and (iii) $15.00 per
purchase, sale and maturity transaction involving each Portfolio. NationsBank of
Texas, N.A. is a wholly owned subsidiary of NationsBank Corporation.
Effective April 25, 1994, First Data, which is located at One Exchange Place,
Boston, Massachusetts 02109, began serving as transfer agent for the Portfolios.
Under the transfer agency agreement, the transfer agent maintains the
shareholder account records for the Trust, handles certain communications
between shareholders and the Trust, and distributes dividends and distributions
payable by the Trust to shareholders, and produces statements with respect to
account activity for the Trust and its shareholders for these services.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Portfolios and different classes of each Portfolio. Each Portfolio
currently offers Capital Class Shares, Liquidity Class Shares, Adviser Class
Shares and Market Class Shares. Except for differences between classes of a
Portfolio pertaining to distribution arrangements, each share of a Portfolio
represents an equal proportionate interest in that Portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Portfolios. Shareholders have no preemptive rights. The
Declaration of Trust provides that the Trustees of the Trust may create
additional portfolios or classes of shares. All consideration received by the
Trust for shares of any additional series and all assets in which such
consideration is invested would belong to that Portfolio and would be subject to
the liabilities related thereto. Share certificates representing shares will not
be issued.
34
<PAGE>
Each Portfolio or class of a Portfolio will vote separately on
matters pertaining solely to such Portfolio or class. Such matters include
matters relating to a Portfolio's investment advisory agreement or a class'
distribution plan. All Portfolios will vote as a whole on matters affecting all
Portfolios such as the election of Trustees and the appointment of the Trust's
independent accountant.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of Shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any Shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
The following table sets forth certain information concerning each person
who, to the Trust's knowledge, is a record owner of 5% or more of the Shares of
a class of a Portfolio. Information is given as of June 20, 1996.
<TABLE>
<CAPTION>
Percentage of Shares
Name and Address Held of Record Only
<S> <C>
Nations Cash Reserves
Adviser Class Shares
NationsBank of Texas as Trustee 20.15%
901 S. Main
Dallas, TX 75283
35
<PAGE>
Nations Treasury Reserves
Capital Class Shares
UPS Health & Welfare Plan 20.26%
55 Glenlake Parkway, N.E.
Atlanta, GA 30328
UPS VEBA-Flexible & Healthcare 7.41%
55 Glenlake Parkway, N.E.
Atlanta, GA 30328
Simmons Co ESOP-Unencumbered 7.25%
One Concourse Parkway, Suite 600
Atlanta, GA 30328-0000
Nations Government Reserves
Capital Class Shares
Westinghouse Sav Riv 5.52%
Co Pen-Adm
1993 South Centennial Avenue
Building 3, Room 354
Building 992-3W-354
Aiken, SC 29802-0000
Nations Municipal Reserves
Capital Class Shares
TR U/A Anderson Corp VEBA 5.98%
100 Fourth Avenue North
Bayport, MN 55003-1096
</TABLE>
EXPERTS AND FINANCIAL INFORMATION
The Trust's Financial Statements for the year ended April 30, 1996 appearing in
the Trust's 1996 Annual Financial Report, and the report thereon of Price
Waterhouse LLP, independent accountant, also appearing therein, are incorporated
by reference in this SAI. The Financial Statements have been examined by Price
Waterhouse LLP, as indicated in its report, with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report. The Letter to Shareholders contained in the 1995
Annual Financial Report is not incorporated by reference and is not a part of
the registration statement or
36
<PAGE>
this SAI.
37
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements, including:
Portfolio of Investments for April 30, 1995
Statements of Assets and Liabilities for April 30, 1995
Statements of Operations for the year ended April 30, 1995
Statements of Changes in Net Assets for the years ended April 30,
1995 and April 30, 1994
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants, dated June 20, 1995
Unaudited Financial Statements, including:
Portfolio of Investments for October 31, 1995
Statements of Assets and Liabilities for October 31, 1995
Statements of Operations for the period ended October 31, 1995
Statements of Changes in Net Assets for the period ended October
31, 1995
Financial Highlights
Notes to Financial Statements
Included in Part C:
Consent of Independent Accountants
(b) Additional Exhibits
<TABLE>
<CAPTION>
<S> <C>
(1) Declaration of Trust Incorporated by Reference to Form N-1A filed January 22, 1990
(2) By-Laws Incorporated by Reference to Form N-1A filed January 22, 1990
(3) Not Applicable
(4) Not Applicable
(5)(a) Management Agreement Incorporated by Reference to Pre-Effective Amendment No. 1
<PAGE>
(5)(b) Investment Advisory Agreement with ASB Capital Management, Inc. Incorporated by
Reference to Pre-Effective Amendment No. 1
(5)(c) Investment Advisory Agreement with NationsBank, N.A. Incorporated by Reference to
Post-Effective Amendment No. 10
(5)(d) Investment Advisory Agreement with Nationsbanc Advisors, Inc. Incorporated by
Reference to Post-Effective Amendment No. 17
(5)(e) Sub-Advisory Agreement with TradeStreet Investment Associates, Inc. Incorporated by
Reference to Post-Effective Amendment No. 17
(6)(a) Distribution Agreement with SEI Financial Services Company Incorporated by Reference
to Pre-Effective Amendment No. 1
(6)(b) Distribution Agreement with Stephens, Inc. Incorporated by Reference to Post-Effective
Amendment No. 10
(7) Not Applicable
(8)(a) Custodian Agreement with Security Trust Company, N.A. Incorporated by Reference to
Pre-Effective Amendment No. 1
(8)(b) Custody Agreement with NationsBank of Texas, N.A. Incorporated by Reference to
Post-Effective Amendment No. 10
(9)(a) Administration Agreement with Stephens Inc. Incorporated by Reference to
Post-Effective Amendment No. 10
(9)(b) Co-Administration Agreement with The Boston Company Advisors, Inc. Incorporated by
Reference to Post-Effective Amendment No. 10
(9)(c) Transfer Agency Agreement with The Shareholder Services Group, Inc. to be filed by
amendment
(10) Opinion and Consent of Counsel is filed herewith
(11) Consent of Independent Accountants is filed herewith
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15)(a) Distribution Plan for Liquidity Class Shares Incorporated by Reference to
Pre-Effective Amendment No. 1
(15)(b) Shareholder Servicing Plan for Adviser Class Shares Incorporated by Reference to
Post-Effective Amendment No. 10
(15)(c) Form of Shareholder Servicing Agreement for Adviser Class Shares Incorporated by
Reference to Post-Effective Amendment No. 10
(15)(d) Shareholder Servicing Plan for Market Class Shares Incorporated by Reference to
Post-Effective Amendment No. 12
(15)(e) Form of Shareholder Servicing Agreement for Market Class Shares Incorporated by
Reference to Post-Effective Amendment No. 10
(15)(f) Distribution Plan for Market Class Shares Incorporated by Reference to Post-Effective
Amendment No. 12
(15)(g) Form of Brokerage Agreement Incorporated by Reference to Post-Effective Amendment No.
11
(15)(h) Shareholder Servicing Plan for Liquidity Class Shares Incorporated by Reference to
Post-Effective Amendment No. 14
2
<PAGE>
(16) Performance Quotation Computation Incorporated by Reference to Post-Effective Amendment No. 6
(17 Not Applicable
(18) Form of Plan entered into by Registrant pursuant to Rule 18f-3 under the Investment
Company Act of 1940
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities:
As of June 20, 1996
Number of
Title of Class Record Holders
Shares of beneficial interest, without par value --
Nations Cash Reserves -- Capital Class 2,167
Nations Cash Reserves -- Liquidity Class 22
Nations Cash Reserves -- Adviser Class 25
Nations Cash Reserves -- Market Class 5
Nations Treasury Reserves -- Capital Class 147
Nations Treasury Reserves -- Liquidity Class 4
Nations Treasury Reserves -- Adviser Class 8
Nations Treasury Reserves -- Market Class 5
Nations Government Reserves -- Capital Class 147
Nations Government Reserves -- Liquidity Class 2
Nations Government Reserves -- Adviser Class 3
Nations Government Reserves -- Market Class 5
Nations Municipal Reserves -- Capital Class 226
Nations Municipal Reserves -- Liquidity Class 6
Nations Municipal Reserves -- Adviser Class 4
Nations Municipal Reserves -- Market Class 4
Item 27. Indemnification
Article VIII of the Agreement of Declaration of Trust filed as Exhibit
1 to the Registration Statement is incorporated by reference. Indemnification of
Registrant's administrators, principal underwriter, custodian and transfer agent
is provided for, respectively, in the:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with The Boston Company Advisors, Inc.;
3. Distribution Agreement with Stephens Inc.;
3
<PAGE>
4. Custody Agreement with NationsBank of Texas, N.A.; and
5. Transfer Agency Agreement with First Data Investor Services Group, Inc.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Adviser:
(a) To the knowledge of Registrant, none of the directors or officers
of NationsBanc Advisors, Inc. ("NBAI"), the adviser to the Registrant's
portfolios, or TradeStreet Investment Associates, Inc. ("TradeStreet") the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation. Set forth below are the names and principal
businesses of the directors and certain of the senior executive officers of NBAI
and TradeStreet who are engaged in any other business, profession, vocation or
employment of a substantial nature.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874). TradeStreet performs sub-investment advisory
services for the Registrant and certain other customers. TradeStreet is a wholly
owned subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation. Information with respect to each director
and officer of the sub-investment adviser is incorporated by reference to Form
filed by TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriters:
4
<PAGE>
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for Nations Fund Trust, Nations
Fund, Inc., Nations Fund Portfolios, Inc., Overland Express Funds, Inc.,
Stagecoach Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the
exclusive placement agent for Master Investment Trust, Managed Series Investment
Trust, Life & Annuity Trust and Master Investment Portfolio, all of which are
registered open-end management investment companies, and has acted as principal
underwriter for the Liberty Term Trust, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and the
Managed Balanced Target Maturity Fund, Inc. closed-end management investment
companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records:
(1) NationsBanc Advisors, Inc., One NationsBank Plaza, Charlotte,
North Carolina 28255 (records relating to its function as Investment Adviser).
(2) TradeStreet Investment Associates, Inc., One NationsBank
Plaza, Charlotte, North Carolina 28255 (records relating to its function as
Sub-Investment Adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator).
(5) First Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group), One Exchange Place, 53 State Street,
Boston, Massachusetts 02109 (records relating to its functions as
Co-Administrator).
(6) First Data Investor Services Group, Inc.(formerly, The
Shareholder Services Group), One Exchange Place, Boston, Massachusetts 02109
(records relating to its function as Transfer Agent).
(7) NationsBank of Texas, N.A., 1401 Elm Street, Dallas, Texas
75202 (records relating to its function as Custodian).
Item 31. Management Services
5
<PAGE>
None
Item 32. Undertakings
(a) To call a meeting of Shareholders for the purpose of voting upon the
question of the removal of a Trustee(s) when requested in writing to do so by
the holders of at least 10% of Registrant's outstanding shares and in connection
with each meeting to comply with the provision of Section 16(c) of the
Investment Company Act of 1940 relating to Shareholder communications.
(b) To furnish each prospective person to whom a prospectus will be
delivered with a copy of the Registrant's latest annual report to shareholders,
when such annual report is issued containing information called for by Item 5A
of Form N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Capitol
Mutual Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out this Registration Statement are not binding upon any of the
Trustees, officers, or Shareholders individually but are binding only upon the
assets and property of the Trust.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Little Rock, State of Arkansas on the
2nd day of July, 1996.
NATIONS INSTITUTIONAL RESERVES
By: *
A. Max Walker
President and Chairman
of the Board of Trustees
By:/s/ RICHARD H. BLANK, JR.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and Chairman July 2, 1996
- ---------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
* Treasurer July 2, 1996
- ---------------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Trustee July 2, 1996
- ----------------------------------
(Edmund L. Benson, III)
* Trustee July 2, 1996
- ----------------------------------
(James Ermer)
* Trustee July 2, 1996
- ----------------------------------
(William H. Grigg)
* Trustee July 2, 1996
- ----------------------------------
(Thomas F. Keller)
* . Trustee July 2, 1996
- -----------------------------------
(Carl E. Mundy, Jr.)
* Trustee July 2, 1996
- ----------------------------------
(Charles B. Walker)
<PAGE>
* Trustee July 2, 1996
- ----------------------------------
(Thomas S. Word)
</TABLE>
/s/ RICHARD H. BLANK, JR.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
EX-27.011 Financial Data Schedules -- Nations Cash Reserves -- Adviser Class Shares
EX-27.012 Financial Data Schedules -- Nations Cash Reserves -- Capital Class Shares
EX-27.013 Financial Data Schedules -- Nations Cash Reserves -- Liquidity Class Shares
EX-27.021 Financial Data Schedules -- Nations Treasury Reserves -- Adviser Class Shares
EX-27.022 Financial Data Schedules -- Nations Treasury Reserves -- Capital Class Shares
EX-27.023 Financial Data Schedules -- Nations Treasury Reserves -- Liquidity Class Shares
EX-27.031 Financial Data Schedules -- Nations Government Reserves -- Adviser Class Shares
EX-27.032 Financial Data Schedules -- Nations Government Reserves -- Capital Class Shares
EX-27.033 Financial Data Schedules -- Nations Government Reserves -- Liquidity Class Shares
EX-27.041 Financial Data Schedules -- Nations Municipal Reserves -- Adviser Class Shares
1
<PAGE>
EX-27.042 Financial Data Schedules -- Nations Municipal Reserves -- Capital Class Shares
EX-27.043 Financial Data Schedules -- Nations Municipal Reserves -- Liquidity Class Shares
EX-99.B10 OPIN COUNS
EX-99.B11 OTH CONSNT
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>043
<NAME> NATIONS CASH RESERVES ADVISER
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 1,041,673,411
<INVESTMENTS-AT-VALUE> 1,041,673,411
<RECEIVABLES> 3,533,376
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,545
<TOTAL-ASSETS> 1,045,215,332
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 4,316,568
<TOTAL-LIABILITIES> 4,316,568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 397,810,536
<SHARES-COMMON-STOCK> 397,810,536
<SHARES-COMMON-PRIOR> 47,683,400
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (0)
<ACCUMULATED-NET-GAINS> (4,755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 397,808,719
<DIVIDEND-INCOME> 979,787
<INTEREST-INCOME> 29,165,735
<OTHER-INCOME> 0
<EXPENSES-NET> 1,425,817
<NET-INVESTMENT-INCOME> 28,719,705
<REALIZED-GAINS-CURRENT> (467)
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<NET-CHANGE-FROM-OPS> 28,719,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,161,756)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 764,101,646
<NUMBER-OF-SHARES-REDEEMED> (414,053,407)
<SHARES-REINVESTED> 78,897
<NET-CHANGE-IN-ASSETS> 859,150,693
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,288)
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<OVERDIST-NET-GAINS-PRIOR> 0
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<AVERAGE-NET-ASSETS> 137,091,791
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>041
<NAME>NATIONS CASH RESERVES CAPITAL
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 1,041,673,411
<INVESTMENTS-AT-VALUE> 1,041,673,411
<RECEIVABLES> 3,533,376
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,545
<TOTAL-ASSETS> 1,045,215,332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,316,568
<TOTAL-LIABILITIES> 4,316,568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 607,645,681
<SHARES-COMMON-STOCK> 607,645,681
<SHARES-COMMON-PRIOR> 134,066,893
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (0)
<ACCUMULATED-NET-GAINS> (4,755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 607,642,905
<DIVIDEND-INCOME> 979,787
<INTEREST-INCOME> 29,165,735
<OTHER-INCOME> 0
<EXPENSES-NET> 1,425,817
<NET-INVESTMENT-INCOME> 28,719,705
<REALIZED-GAINS-CURRENT> (467)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28,719,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,455,385)
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,186,447,620
<NUMBER-OF-SHARES-REDEEMED> (714,069,908)
<SHARES-REINVESTED> 1,201,076
<NET-CHANGE-IN-ASSETS> 859,150,693
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,288)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,083,457
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>042
<NAME>NATIONS CASH RESERVES LIQUIDITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 1,041,673,411
<INVESTMENTS-AT-VALUE> 1,041,673,411
<RECEIVABLES> 3,533,376
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<OTHER-ITEMS-ASSETS> 8,545
<TOTAL-ASSETS> 1,045,215,332
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<OTHER-ITEMS-LIABILITIES> 4,316,568
<TOTAL-LIABILITIES> 4,316,568
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,447,302
<SHARES-COMMON-STOCK> 35,447,302
<SHARES-COMMON-PRIOR> 2,066
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (0)
<ACCUMULATED-NET-GAINS> (4,755)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 35,447,140
<DIVIDEND-INCOME> 979,787
<INTEREST-INCOME> 29,165,735
<OTHER-INCOME> 0
<EXPENSES-NET> 1,425,817
<NET-INVESTMENT-INCOME> 28,719,705
<REALIZED-GAINS-CURRENT> (467)
<APPREC-INCREASE-CURRENT> 0
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<DISTRIBUTIONS-OF-INCOME> (1,102,564)
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<NUMBER-OF-SHARES-SOLD> 316,764,360
<NUMBER-OF-SHARES-REDEEMED> (282,161,641)
<SHARES-REINVESTED> 842,517
<NET-CHANGE-IN-ASSETS> 859,150,693
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,288)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,577,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,083,457
<AVERAGE-NET-ASSETS> 20,528,357
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>053
<NAME> NATIONS TREASURY RESERVES ADVISER
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 597,702,672
<INVESTMENTS-AT-VALUE> 597,702,672
<RECEIVABLES> 1,736,100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,920
<TOTAL-ASSETS> 599,461,692
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 107,624,470
<TOTAL-LIABILITIES> 107,624,470
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<SHARES-COMMON-PRIOR> 55,764,669
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (34,489)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 175,691,024
<DIVIDEND-INCOME> 925,290
<INTEREST-INCOME> 27,048,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,299,582
<NET-INVESTMENT-INCOME> 26,673,804
<REALIZED-GAINS-CURRENT> (21,910)
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<DISTRIBUTIONS-OF-INCOME> (6,594,104)
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<NUMBER-OF-SHARES-SOLD> 569,065,291
<NUMBER-OF-SHARES-REDEEMED> (449,157,719)
<SHARES-REINVESTED> 31,406
<NET-CHANGE-IN-ASSETS> 183,707,595
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,579)
<GROSS-ADVISORY-FEES> 1,472,072
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,832,056
<AVERAGE-NET-ASSETS> 127,328,261
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 90,066,658
<AVG-DEBT-PER-SHARE> 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>051
<NAME> NATIONS TREASURY RESERVES CAPITAL
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 597,702,672
<INVESTMENTS-AT-VALUE> 597,702,672
<RECEIVABLES> 1,736,100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,920
<TOTAL-ASSETS> 599,461,692
<PAYABLE-FOR-SECURITIES> 0
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<OTHER-ITEMS-LIABILITIES> 107,624,470
<TOTAL-LIABILITIES> 107,624,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 304,363,169
<SHARES-COMMON-STOCK> 304,363,940
<SHARES-COMMON-PRIOR> 251,704,182
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (34,489)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 304,342,074
<DIVIDEND-INCOME> 925,290
<INTEREST-INCOME> 27,048,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,299,582
<NET-INVESTMENT-INCOME> 26,673,804
<REALIZED-GAINS-CURRENT> (21,910)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26,651,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,934,505)
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,731,309,808
<NUMBER-OF-SHARES-REDEEMED> (1,678,650,050)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 183,707,595
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,579)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,832,056
<AVERAGE-NET-ASSETS> 360,593,997
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
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<PER-SHARE-DIVIDEND> (0.06)
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<PER-SHARE-NAV-END> 1.00
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<AVG-DEBT-OUTSTANDING> 90,066,658
<AVG-DEBT-PER-SHARE> 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>052
<NAME> NATIONS TREASURY RESERVES LIQUIDITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
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<RECEIVABLES> 1,736,100
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,920
<TOTAL-ASSETS> 599,461,692
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<OTHER-ITEMS-LIABILITIES> 107,624,470
<TOTAL-LIABILITIES> 107,624,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,804,964
<SHARES-COMMON-STOCK> 11,804,972
<SHARES-COMMON-PRIOR> 674,203
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (34,489)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 11,804,124
<DIVIDEND-INCOME> 925,290
<INTEREST-INCOME> 27,048,096
<OTHER-INCOME> 0
<EXPENSES-NET> 1,299,582
<NET-INVESTMENT-INCOME> 26,673,804
<REALIZED-GAINS-CURRENT> (21,910)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26,651,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (145,195)
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,746,115
<NUMBER-OF-SHARES-REDEEMED> (12,729,001)
<SHARES-REINVESTED> 113,655
<NET-CHANGE-IN-ASSETS> 183,707,595
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (12,579)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,832,056
<AVERAGE-NET-ASSETS> 2,768,280
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 90,066,658
<AVG-DEBT-PER-SHARE> 0.18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>063
<NAME> Nations Govt Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 166,415,296
<INVESTMENTS-AT-VALUE> 166,415,296
<RECEIVABLES> 744,522
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,490
<TOTAL-ASSETS> 167,163,308
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 745,033
<TOTAL-LIABILITIES> 745,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,169,065
<SHARES-COMMON-STOCK> 108,169,411
<SHARES-COMMON-PRIOR> 99,247,546
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,062)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 108,167,558
<DIVIDEND-INCOME> 139,716
<INTEREST-INCOME> 7,270,018
<OTHER-INCOME> 0
<EXPENSES-NET> 517,401
<NET-INVESTMENT-INCOME> 6,892,333
<REALIZED-GAINS-CURRENT> (1,654)
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<NET-CHANGE-FROM-OPS> 6,890,679
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<DISTRIBUTIONS-OF-INCOME> (5,384,015)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 327,190,413
<NUMBER-OF-SHARES-REDEEMED> (318,282,969)
<SHARES-REINVESTED> 14,421
<NET-CHANGE-IN-ASSETS> 67,167,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (408)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 940,667
<AVERAGE-NET-ASSETS> 102,419,904
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
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<PER-SHARE-DIVIDEND> (0.05)
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>061
<NAME>Nations Govt Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 166,415,296
<INVESTMENTS-AT-VALUE> 166,415,296
<RECEIVABLES> 744,522
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,490
<TOTAL-ASSETS> 167,163,308
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 745,033
<TOTAL-LIABILITIES> 745,033
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,122,303
<SHARES-COMMON-STOCK> 58,122,320
<SHARES-COMMON-PRIOR> 2,011
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,062)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 58,121,335
<DIVIDEND-INCOME> 139,716
<INTEREST-INCOME> 7,270,018
<OTHER-INCOME> 0
<EXPENSES-NET> 517,401
<NET-INVESTMENT-INCOME> 6,892,333
<REALIZED-GAINS-CURRENT> (1,654)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,890,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,507,329)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 154,655,332
<NUMBER-OF-SHARES-REDEEMED> (96,565,556)
<SHARES-REINVESTED> 30,543
<NET-CHANGE-IN-ASSETS> 67,167,852
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (408)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 391,486
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 940,667
<AVERAGE-NET-ASSETS> 28,048,006
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>062
<NAME>Nations Govt Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 166,415,296
<INVESTMENTS-AT-VALUE> 166,415,296
<RECEIVABLES> 744,522
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,490
<TOTAL-ASSETS> 167,163,308
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 745,033
<TOTAL-LIABILITIES> 745,033
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<PAID-IN-CAPITAL-COMMON> 128,969
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<PER-SHARE-NAV-BEGIN> 1.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Nations Municipal Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> APR-30-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Nations Municipal Reserves Capital
<S> <C>
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<SHARES-COMMON-PRIOR> 32,353,465
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<OVERDISTRIBUTION-GAINS> 0
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<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 3,808,332
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,808,332
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<DISTRIBUTIONS-OF-INCOME> (1,408,074)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 176,646,799
<NUMBER-OF-SHARES-REDEEMED> (160,517,575)
<SHARES-REINVESTED> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Nations Municipal Reserves Liquidity
<S> <C>
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,733,572
<SHARES-COMMON-STOCK> 6,733,572
<SHARES-COMMON-PRIOR> 2,591,068
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 6,733,502
<DIVIDEND-INCOME> 113,807
<INTEREST-INCOME> 4,088,690
<OTHER-INCOME> 0
<EXPENSES-NET> 394,165
<NET-INVESTMENT-INCOME> 3,808,332
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,808,332
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<DISTRIBUTIONS-OF-INCOME> (144,956)
<DISTRIBUTIONS-OF-GAINS> 0
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<SHARES-REINVESTED> 135,917
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<GROSS-EXPENSE> 810,615
<AVERAGE-NET-ASSETS> 4,324,787
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
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</TABLE>
EX-99.B-10
[MORRISON & FOERSTER LLP LETTERHEAD]
June 28, 1996
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
Re: Units of Beneficial Interest in the
Funds of The Capitol Mutual Funds
(d/b/a Nations Institutional Reserves)
Gentlemen:
We refer to Post-Effective Amendment No. 18 and Amendment No. 19
to the Registration Statement on Form N-1A (SEC File Nos. 33-33144;
811-6030) (the "Registration Statement") of The Capitol Mutual Funds (the
"Trust") relating to the registration of an indefinite number of units of
Beneficial Interest in Funds of the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments,
certificates of public officials and of the Trust, made such inquiries of
the Trust, and examined such questions of law as we have deemed necessary
for the purpose of rendering the opinion set forth herein. We have assumed
the genuineness of all signatures and the authenticity of all items
submitted to us as originals and the conformity with originals of all items
submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance and sale of the Shares by the Trust have been duly
and validly authorized by all appropriate action, and assuming delivery by
sale or in accord with the dividend reinvestment plan of each of the
Trust's portfolios in accordance with the
<PAGE>
The Capitol Mutual Funds
June 28, 1996
Page 2
DC-4752 (25052-4)
description set forth in the Registration Statement, the Shares will be
validly issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our Firm under the heading "Counsel" in the Statement of
Additional Information, and the description of advice rendered by our Firm
under the heading "The Adviser" in the Prospectuses, which are included as
part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
EX-99.B-11
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
and Statement of Additional Information constituting parts of this
Post-Effective Amendment No. 18 under the Securities Act of 1933 to the
registration statement on Form N-1A (the "Registration Statement") of our report
dated June 20, 1995, relating to the financial statements and financial
highlights appearing in the April 30, 1995 Annual Report to Shareholders of the
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds),
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "Independent Accountants, Custodian and Transfer Agent" in the Prospectuses
and under the heading "Experts and Financial Information" in the Statement of
Additional Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boson, Massachusetts
June 28, 1996
