As filed with the Securities and Exchange Commission
on August 27, 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. 19 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 20 [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>
[ ] Immediately upon filing pursuant to Rule 485(b); or [X] on August 31, 1996 pursuant to Rule 485(b), or
[ ] 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. 19 to the Registration
Statement of The Capitol Mutual Funds (d/b/a/ Nations Institutional Reserves)
(the "Trust") is being filed in order to provide updated financial information
for the Trust's investment funds (the "Funds"), and to effect certain related,
non-material changes. The series will be marketed through various channels,
including banks.
<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A/ NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
Item No. Prospectus
<S> <C>
1. Cover Page ......................................................... Cover Page
2. Synopsis ........................................................ Expenses Summary
3. Condensed Financial Information...................................... Financial Highlights; How
Performance Is Shown
4. General Description of Registrant................................... Cover Page; Objectives; How
Objectives Are Pursued;
Organization And History
5. Management of the Fund............................................... How The Funds Are Managed
5A. Management's Discussion of Fund Performance................. *
6. Capital Stock and Other Securities................................... How To Buy Shares; How The Funds
Value Their Shares; How
Dividends And Distributions Are
Made; Tax Information
7. Purchase of Securities Being Offered................................. Cover Page; How To Buy Shares
8. Redemption or Repurchase............................................. How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings.................................................... Organization And History
PART B
Item No.
10. Cover Page ........................................................ Cover Page
1
<PAGE>
11. Table of Contents................................................... Table of Contents
12. General Information and History..................................... The Trust
13. Investment Objectives and Policies.................................. Description of Permitted
Investments; Investment
Limitations; Securities Lending
14. Management of the Registrant........................................ Trustees and Officers
15. Control Persons and Principal Holders of Securities................. 5% Shareholders
16. Investment Advisory and Other Services.............................. The Adviser; The Administrator
and Co-Administrator;
Distribution and Shareholder
Servicing Plans; and Custodian
and Transfer Agent
17. Brokerage Allocation ............................................... Portfolio Transactions
18. Capital Stock and Other Securities.................................. Description of Shares
19. Purchase, Redemption and Pricing of Securities
being Offered...................................................... Net Asset-Value -- Purchases and
Redemptions; Distributor
20. Tax Status ........................................................ Taxes
19. Underwriters........................................................ Distribution and Shareholder Servicing Plans
20. Calculation of Performance Data..................................... Performance Information
21. Financial Statements................................................ Experts and Financial Information
</TABLE>
2
<PAGE>
PART C
Item No.
Information required to be
in Part C is set forth under
the appropriate Item, so
numbered, in Part C of this
document.
3
<PAGE>
<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
funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Adviser
Class Shares of the following diversified money
market funds (each, a "Fund"): 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 FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the 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 Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF 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 FUNDS 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 Fund 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
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 12
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your Investment
How To Buy Shares 19
How To Redeem Shares 19
How To Exchange Shares 20
Shareholder Servicing Plan 21
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 31
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree
of liquidity while providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high
degree of liquidity while providing current income exempt
from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Adviser Class
Shares is $100,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Adviser Class Shares of the
Funds. 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 Funds over
specified periods.
ANNUAL OPERATING EXPENSES1
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C>
Advisory Fees (Absent Fee Waivers) .15% .15% .15% .15%
Rule 12b-1 Fees (Shareholder Servicing Fees) .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .05% .05% .05% .05%
Total Operating Expenses (Absent Fee Waivers and Expense
Reimbursements) .45% .45% .45% .45%
</TABLE>
1 The adviser, investment sub-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 Funds, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, investment
sub-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, Other Expenses and Total
Operating Expenses for Nations Cash Reserves would be .30%, .21% and .76% of
average net assets, respectively; for Nations Treasury Reserves would be .30%,
.21% and .76% of average net assets, respectively; for Nations Government
Reserves would be .30%, .23% and .78% of average net assets, respectively; and
for Nations Municipal Reserves would be .30%, .28% and .83% of average net
assets, respectively. Additional operating expense information may be found
under "How The Funds Are Managed."
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Adviser
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
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 Fund'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 Funds. The "Other
Expenses" figures contained in the above tables are based on estimated amounts
for the Funds' 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 Funds' operating expenses, see "How The Funds Are
Managed."
5
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose June 19, 1996 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, 1996, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
ADVISER CLASS SHARES: 04/30/96 04/30/95*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0545 0.0316
Dividends from net investment income (0.0545) (0.0316)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.58% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 397,809 $ 47,682
Ratio of operating expenses to average net assets 0.45% 0.54%+
Ratio of net investment income to average net assets 5.28% 4.71%+
Ratio of operating expenses to average net assets without waivers 0.76% 0.77%+
Ratio of net investment income to average net assets without waivers 4.97% 4.48%+
Net investment income per share without waivers $ 0.0513 $ 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.
6
<PAGE>
NATIONS TREASURY RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/96 04/30/95*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0531 0.0308
Dividends from net investment income (0.0531) (0.0308)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.45% 3.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 175,691 $ 55,762
Ratio of operating expenses to average net assets 0.45% 0.45%+
Ratio of net investment income to average net assets 5.25% 4.54%+
Ratio of operating expenses to average net assets without waivers 0.76% 0.75%+
Ratio of net investment income to average net assets without waivers 4.94% 4.25%+
Net investment income per share without waivers $ 0.0500 $ 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.
7
<PAGE>
NATIONS GOVERNMENT RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/96 04/30/95*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0527 0.0299
Dividends from net investment income (0.0527) (0.0299)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.39% 3.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 108,168 $ 99,246
Ratio of operating expenses to average net assets 0.45% 0.57%+
Ratio of net investment income to average net assets 5.23% 4.10%+
Ratio of operating expenses to average net assets without waivers 0.78% 0.79%+
Ratio of net investment income to average net assets without waivers 4.90% 3.88%+
Net investment income per share without waivers $ 0.0494 $ 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.
8
<PAGE>
NATIONS MUNICIPAL RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/96 04/30/95*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0337 0.0199
Dividends from net investment income (0.0337) (0.0199)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 3.43% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 55,511 $ 64,123
Ratio of operating expenses to average net assets 0.45% 0.48%+
Ratio of net investment income to average net assets 3.36% 3.11%+
Ratio of operating expenses to average net assets without waivers and/or expenses
reimbursed 0.83% 0.84%+
Ratio of net investment income to average net assets without waivers and/or
expenses reimbursed 2.98% 2.74%+
Net investment income per share without waivers and/or expenses reimbursed $ 0.0299 $ 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.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund 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 Fund; (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. The Fund 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 Fund include instruments
issued by trusts, partnerships or other special purpose issuers, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such issuers.
The Fund 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 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
10
<PAGE>
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund 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 Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, a "AAAm" rating signifies that safety is
excellent and indicates that the fund exhibits a superior capacity to maintain
principal value and limit exposure to loss. According to Moody's, "Aaa" money
market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund 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
("Municipal Securities"). At least 80% of the Fund'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 Securities in which the Fund 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 Fund's investments in any of the Municipal Securities 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, (iii) which are rated SP-1 at the
time of investment by 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 Fund also may invest in securities issued by other investment
companies, consistent with its investment objective and policies.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"),
11
<PAGE>
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; having a long-term rating of "A" or higher from D&P, Fitch, S&P, IBCA,
BankWatch or Moody's in the case of certain bonds which are 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".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and Municipal Securities of the type described above,
which are subject to the alternative minimum tax. However, the Fund generally
intends to be fully invested in federally tax-exempt securities.
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund 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 Fund 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 Fund invests guarantees only the pay-
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ment 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
Fund.
INVESTMENT LIMITATIONS: Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund 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 U.S.
Government Obligations; 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 Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund 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 restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund 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: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), some
of which are described below. A money market fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, and to maintaining a dollar-weighted
average portfolio maturity of 90 days or less. Quality requirements generally
limit investments to U.S. dollar denominated instruments determined to present
minimal credit risks which, at the time of acquisition, are rated in the first
or second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a money market fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
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FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds 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 Fund refers to the
income generated by an investment in the Fund 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 Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
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 Fund's
yield, assuming certain tax brackets for Shareholders.
The yield of the Funds fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in a Fund will
actually yield in the future. Performance quotations will be computed separately
for each class of a Fund'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 Fund's annual report
contains additional performance information and is available on request without
charge from Stephens Inc. ("Stephens").
In addition, a Fund 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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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
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.
THE ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to the
Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Fund, 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 Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Fund. 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 Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Adviser Class Shares (exclusive of Rule 12b-1 fees) of the Funds (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 period from March 31, 1995 to December 31, 1995, after waivers,
the Funds paid
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NationsBank under a prior Advisory Agreement, an Advisory Fee at the indicated
rates of the Funds' average net assets: Nations Cash Reserves -- .04%; Nations
Treasury Reserves -- .04%; Nations Government Reserves -- .03%; and Nations
Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers, the
Funds paid NBAI under the current Advisory Agreement, an Advisory Fee at the
indicated rates of the Funds' net assets: Nations Cash Reserves -- .03%; Nations
Treasury Reserves -- .03%; Nations Government Reserves -- .02%; and Nations
Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement, an Advisory Fee
at the indicated rates of the Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- 0%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Municipal Reserves. She has
been Portfolio Manager for Nations Municipal Reserves since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and
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judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If such
entity were prohibited from performing any such services, it is expected that
new agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens, 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 Funds, including providing general oversight of other service
providers, office space, utilities and various legal and administrative services
in connection with the satisfaction of various regulatory requirements
applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to 0.10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1996, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .05%; Nations Treasury Reserves -- .05%; Nations Government
Reserves -- .06%; and Nations Municipal Reserves -- .06%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
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 Funds. No compensation is paid to
Stephens for distribution services for the Adviser Class Shares.
NationsBank of Texas, N.A., serves as each Fund'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 Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
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EXPENSES: 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.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), 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 Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. 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. NBAI is the
investment adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Adviser Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Market Class Shares. Capital Class Shares, which do
not bear distribution or shareholder servicing fees, 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 and which meet the $1,000,000
minimum initial investment requirement. 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 Funds bear aggregate
distribution and shareholder servicing fees of up to 0.85% of the class's
average daily net assets. The Market Class Shares are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for which
they act in fiduciary, agency or custodial capacity and 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 Fund shares may
receive different compensation with respect to one particular class of shares
over another in a Fund. Information regarding the Capital Class, the Liquidity
Class and the Market Class Shares of the Funds is contained in separate
prospectuses that may be obtained from the Trust's distributor. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact Nations Fund at 1-800-626-2275.
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 circum-
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stances. 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.
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.
About Your Investment
How To Buy Shares
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 Capital 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 New York Stock 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.
How To Redeem Shares
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 Fund. 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
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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. A
redemption will generally result in a gain or loss for Federal income tax
purposes.
Due to the high cost of maintaining Fund 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.
How To Exchange Shares
The exchange feature enables a Shareholder of Adviser Class Shares of a Fund to
acquire Adviser Class Shares of another Fund when that Shareholder believes that
a shift between Funds is an appropriate investment decision. An exchange of
Adviser Class Shares for Adviser Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations 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 90 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. Shareholders should be aware that by electing the
telephone transaction feature, such shareholders may be giving up a measure of
security that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations 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 provides
written confirmation to Shareholders of each telephone share transaction. In
addition, Nations Fund reserves the right to record all telephone conversations.
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Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Adviser Class Shares of the Funds. Pursuant to the Servicing
Plan, the Trust, on behalf of each Fund, 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 Funds 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 Funds' 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 Fund 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 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 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.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each Business Day.
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The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund 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 Fund 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 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.
TAX INFORMATION: Each Fund is treated as a separate entity for Federal income
tax purposes and is not combined with the Trust's other portfolios. Each Fund
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 Fund
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, the
excess of net short-term capital gain over net long-term capital loss) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to Shareholders.
Each Fund intends to distribute substantially all of its net investment income
(and net 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 Fund'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 Fund, 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 Fund'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
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long-term capital gain, regardless of how long a Shareholder has held shares.
The Funds 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 Fund
in the year those dividends are paid. However, dividends declared by a Fund 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 Fund
and received by the Shareholders on December 31st, if paid by the Fund 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 Fund 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 Fund 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 individual Shareholder accounts if
the Shareholder has not properly furnished a certified correct Taxpayer
Identification Number or 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 Fund 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 Funds. 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.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates.
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Conversely, asset-backed securities provide periodic payments which may consist
of both interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
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Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of compara-
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ble quality to such instruments as determined by the Board of Trustees on the
advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insur-
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ance companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repur-
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<PAGE>
chase agreements and municipal securities. Such instruments are described in
this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or bro-
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ker/dealers with respect to Municipal Securities held in their portfolios. Under
a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Funds's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered
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illiquid securities and are subject to the limit stated above. A Fund may enter
into joint repurchase agreements jointly with other investment portfolios of
Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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 Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an
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obligation with a variable or floating interest rate and an unconditional right
of demand on the part of the holder to receive payment of unpaid principal and
accrued interest. The Funds will invest in securities with demand features where
(a) the security or its issuer has received a short-term rating from an NRSRO;
and (b) the issuer of the demand feature, or another institution, undertakes to
notify promptly the holder of the security in the event that the demand feature
is substituted with a demand feature provided by another issuer. (Note, however,
that certain securities first issued on or before June 3, 1996 are not subject
to these rating and notice requirements.) An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which
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make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample
32
<PAGE>
margins of protection although not so large as in the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term 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.
33
<PAGE>
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
34
<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
funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Market Class
Shares of the following diversified money market
funds (each, a "Fund"): 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 FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the 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 Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF 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 FUNDS 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 Fund 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
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 6
How Objectives Are Pursued 6
General Investment Policies 9
How Performance Is Shown 10
How The Funds Are Managed 11
Organization And History 14
About Your Investment
How To Buy Shares 15
How To Redeem Shares 16
How To Exchange Shares 16
Distribution And Shareholder Servicing Plans 17
How The Funds Value Their Shares 18
How Dividends And Distributions Are Made; Tax
Information 19
Appendix A -- Portfolio Securities 20
Appendix B -- Description Of Ratings 28
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree
of liquidity while providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high
degree of liquidity while providing current income exempt
from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Market Class Shares
is $250,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Market Class Shares of the
Funds. 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 Funds over
specified periods.
ANNUAL OPERATING EXPENSES1
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C>
Advisory Fees (Absent Fee Waivers) .15% .15% .15% .15%
Rule 12b-1 Fees (Absent Fee Waivers) .10% .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .05% .05% .05% .05%
Total Operating Expenses (Absent Fee Waivers and Expense
Reimbursements) .55% .55% .55% .55%
</TABLE>
1 The adviser, investment sub-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 Funds, and the advisory fees and other
expenses shown reflect the voluntary waivers and/or reimbursements. The
adviser, investment sub-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%, .21% and
.96% of average net assets, respectively; for Nations Treasury Reserves would
be .30%, .20%, .21% and .96% of average net assets, respectively; for Nations
Government Reserves would be .30%, .20%, .23% and .98% of average net assets,
respectively; and for Nations Municipal Reserves would be .30%, .20%, .28% and
1.03% of average net assets, respectively. Additional operating expense
information may be found under "How The Funds Are Managed."
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Market
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
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 Fund'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 Funds. The
"Other Expenses" figures contained in the above table are based on estimated
amounts for the Funds' 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 Fund could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
5
<PAGE>
Financial Highlights
Financial information is not provided in connection with Market Class Shares of
the Funds because such shares were not offered to the public during the Trust's
most recent fiscal year. Financial information in connection with Capital Class,
Adviser Class and Liquidity Class Shares of the Funds 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 Funds' investment operations and annual
financial statements audited by the Trust's independent accountant.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund 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 Fund; (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.
6
<PAGE>
The Fund 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 Fund
include instruments issued by trusts, partnerships or other special purpose
issuers, including pass-through certificates representing participations in, or
debt instruments backed by, the securities and other assets owned by such
issuers.
The Fund 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 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund 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 Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, a "AAAm" rating signifies that safety is
excellent and indicates that the fund exhibits a superior capacity to maintain
principal value and limit exposure to loss. According to Moody's, "Aaa" money
market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund 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
("Municipal Securities"). At least 80% of the Fund's total assets will be
invested in securities the interest on which is
7
<PAGE>
exempt from Federal income taxes, based on opinions from bond counsel for the
issuers.
Municipal Securities in which the Fund 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 Fund's investments in any of the Municipal Securities 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, (iii) which are rated SP-1 at the
time of investment by 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 Fund also may invest in securities issued by other investment
companies, consistent with its investment objective and policies.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), 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; having a long-
term rating of "A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in
the case of certain bonds which are 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".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and Municipal Securities of the type described above,
which are subject to the alternative minimum tax. However, the Fund generally
intends to be fully invested in federally tax-exempt securities.
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
8
<PAGE>
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund 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 Fund 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 Fund 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 Fund.
INVESTMENT LIMITATIONS: Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund 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 U.S.
Government Obligations; 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 Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund 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 restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund 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: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), some
of which are described below. A money market fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, and to maintaining a dollar-weighted
average portfolio
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maturity of 90 days or less. Quality requirements generally limit investments to
U.S. dollar denominated instruments determined to present minimal credit risks
which, at the time of acquisition, are rated in the first or second rating
categories (known as "first tier" and "second tier" securities, respectively) by
the required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a money market fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Municipal Reserves)
no more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds 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 Fund refers to the
income generated by an investment in the Fund 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 Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
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 Fund's
yield, assuming certain tax brackets for Shareholders.
The yield of the Funds fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in
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a Fund will actually yield in the future. Performance quotations will be
computed separately for each class of a Fund'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 Fund's
annual report contains additional performance information and is available on
request without charge from Stephens Inc. ("Stephens").
In addition, a Fund 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.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
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.
THE ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to the
Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Fund, 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 Fund may invest in
securities of companies with which NationsBank has a lending relationship.
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For the services provided and expenses assumed pursuant to 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
Fund. 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 Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Market Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees) of
the Funds (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 period from March 31, 1995 to December 31, 1995, after waivers,
the Funds paid NationsBank under a prior Advisory Agreement, an Advisory Fee at
the indicated rates of the Funds' average net assets: Nations Cash
Reserves -- .04%; Nations Treasury Reserves -- .04%; Nations Government
Reserves -- .03%; and Nations Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers, the
Funds paid NBAI under the current Advisory Agreement, an Advisory Fee at the
indicated rates of the Funds' net assets: Nations Cash Reserves -- .03%; Nations
Treasury Reserves -- .03%; Nations Government Reserves -- .02%; and Nations
Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement, an Advisory Fee
at the indicated rates of the Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- 0%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Municipal Reserves. She has
been Portfolio Manager for Nations Municipal Reserves since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
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TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens, 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 Funds, including providing general oversight of other service
providers, office space, utilities and various legal and administrative services
in connection with the satisfaction of various regulatory requirements
applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to 0.10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1996, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .05%; Nations Treasury Reserves -- .05%; Nations Government
Reserves -- .06%; and Nations Municipal Reserves -- .06%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
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 Funds. Stephens may pay service fees
or commissions to selling agents that assist customers in purchasing Market
Class Shares of the Funds. See "Distribution And Shareholder Servicing Plans."
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NationsBank of Texas, N.A., serves as each Fund'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 Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: 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.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), 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 Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. 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. NBAI is the investment
adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Market Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Adviser Class Shares. Capital Class Shares, which do
not bear distribution or shareholder servicing fees, 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 and which meet the $1,000,000
minimum initial investment requirement. 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 Funds 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, 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 and which meet the
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$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. A salesperson and any other person or entity entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding the Capital Class, the Liquidity Class and the
Adviser Class Shares of the Funds is contained in separate prospectuses that may
be obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Fund at 1-800-626-2275.
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.
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.
About Your Investment
How To Buy Shares
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 New York Stock 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.
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How To Redeem Shares
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 Fund. 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. A redemption will generally result in a gain or loss for Federal
income tax purposes.
How To Exchange Shares
The exchange feature enables a Shareholder of Market Class Shares of a Fund to
acquire Market Class Shares of another Fund 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 Fund is made on the basis
of the next calculated net asset value per share of each Fund after the exchange
order is received.
The Fund and each of the other funds of Nations 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations 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 90 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.
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TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. Shareholders should be aware that by electing the
telephone transaction feature, such shareholder may be giving up a measure of
security that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations 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 provides
written confirmation to Shareholders of each telephone share transaction. In
addition, Nations Fund reserves the right to record all telephone conversations.
Distribution And Shareholder Servicing Plans
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 Fund. Pursuant to the Plan, each Fund may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Fund'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 Fund's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Funds 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 may include, without limitation, (i)
the expenses of operating Stephens' or Selling Agents' offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
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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 Funds.
Pursuant to the Servicing Plan, the Trust, on behalf of each Fund, 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 Funds 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 Funds' 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.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each Business Day.
The assets of each Portfolio are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Portfolios at $1.00, there can be no assurance that their net asset value per
share will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund 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 Fund 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 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.
TAX INFORMATION: Each Fund is treated as a separate entity for Federal income
tax purposes and is not combined with the Trust's other portfolios. Each Fund
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 Fund
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, the
excess of net short-term capital gain over net long-term capital loss) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to Shareholders.
Each Fund intends to distribute substantially all of its net investment income
and net 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 Fund'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 Fund, 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 Fund'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 Funds 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 Fund
in the year those dividends are paid. However, dividends declared by a Fund 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 Fund
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and received by the Shareholders on December 31st, if paid by the Fund 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 Fund 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 Fund 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 individual Shareholder accounts if
the Shareholder has not properly furnished a certified correct Taxpayer
Identification Number or 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 Fund 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 Funds. 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.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mort-
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gage-backed securities include mortgage pass-through securities, collateralized
mortgage obligations ("CMOs"), parallel pay CMOs, planned amortization class
CMOs ("PAC Bonds") and stripped mortgage-backed securities ("SMBS"), including
interest-only and principal-only SMBS. SMBS may be more volatile than other debt
securities. For additional information concerning mortgage-backed securities,
see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency
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purposes. In addition, each of the Funds (except Nations Municipal Reserves) may
use reverse repurchase agreements for the purpose of investing the proceeds in
tri-party repurchase agreements. Generally, the effect of such a transaction is
that a Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two NRSROs are rated in the highest rating category for
short-term debt obligations given by such organizations, or if only rated by
one such organization, are rated in the highest rating category for short-term
debt obligations given by such organization; or (b) if not rated, are (i)
comparable in priority and security to a class of short-term instruments of
the same issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instru-
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ments that may be acquired by a Fund. Commercial instruments include
variable-rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate, and variable- and floating-rate instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respec-
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tive net assets in securities that are illiquid or such lower percentage as may
be required by the states in which the appropriate Fund sells its shares.
Repurchase agreements, time deposits and GICs that do not provide for payment to
a Fund within seven days after notice, and illiquid restricted securities are
subject to the limitation on illiquid securities. In addition, interests in
privately arranged loans acquired by Nations Cash Reserves may be subject to
this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Portfolio
holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or
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class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source such as the user of the facility being
financed. "Private activity bonds" held by a Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly
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or monthly basis. Securities purchased on a "when-issued" basis are subject to
settlement within 45 days of the purchase date. The interest rate realized on
these securities is fixed as of the purchase date and no interest accrues to the
Fund before settlement. These securities are subject to market fluctuation due
to changes in market interest rates. The Funds will only commit to purchase a
security on a when-issued basis with the intention of actually acquiring the
security and will segregate sufficient liquid assets to meet its purchase
obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
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recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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 Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer.
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(Note, however, that certain securities first issued on or before June 3, 1996
are not subject to these rating and notice requirements.) An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A.
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The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category. With regard to municipal bonds, those bonds in the Aa and A
groups which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
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.
29
<PAGE>
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 long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
30
<PAGE>
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
31
<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
funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Capital
Class Shares of the following diversified money
market funds (each, a "Fund"): 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 FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the 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 Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF 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 FUNDS 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 Fund 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
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 12
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your Investment
How To Buy Shares 19
How To Redeem Shares 19
How To Exchange Shares 20
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made; Tax
Information 21
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree
of liquidity while providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high
degree of liquidity while providing current income exempt
from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Capital Class
Shares is $1,000,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Capital Class Shares of
the Funds. 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 Funds over
specified periods.
ANNUAL OPERATING EXPENSES1
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .15% .15% .15%
Other Expenses (After Expense Reimbursements) .05% .05% .05% .05%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .20% .20% .20% .20%
</TABLE>
1 The adviser, investment sub-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 Funds, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, investment
sub-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, Other Expenses and Total Operating
Expenses for Nations Cash Reserves would be .30%, .21% and .51% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .21% and
.51% of average net assets, respectively; for Nations Government Reserves
would be .30%, .23% and .53% of average net assets, respectively; and for
Nations Municipal Reserves would be .30%, .28% and .58% 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 "How The Funds Are Managed."
4
<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>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
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 Fund'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 Funds which
are subject to the same expenses plus additional distribution and/or shareholder
servicing fees. Additional operating expense information may be found under "How
The Funds Are Managed."
5
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose June 19, 1996 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, 1996, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
For a Capital Class Share ENDED ENDED ENDED ENDED ENDED ENDED
outstanding throughout each period: 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0570 0.0480 0.0283 0.0315 0.0492 0.0392
Dividends From Net Investment Income (0.0570) (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 $ 1.00
Total Return++ 5.84% 4.91% 2.87% 3.19% 5.03% 7.35%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 607,643 $ 134,064 $ 109,852 $ 55,739 $ 100,943 $ 19,387
Ratio Of Operating Expenses To
Average Net Assets 0.20% 0.29% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To
Average Net Assets 5.53% 4.96% 2.83% 3.15% 4.61% 7.04%+
Ratio Of Operating Expenses To
Average Net Assets Without Waivers 0.51% 0.52% 0.56% 0.59% 0.74% 0.79%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 5.22% 4.73% 2.72% 3.01% 4.32% 6.70%+
Net Investment Income Per Share
Without Waivers $ 0.0538 $ 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.
6
<PAGE>
NATIONS TREASURY RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
For a Capital Class Share ENDED ENDED ENDED ENDED ENDED ENDED
outstanding throughout each period: 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0556 0.0480 0.0298 0.0323 0.0481 0.0176
Net Realized Gain On Investments -- -- -- 0.0001 0.0003 --
Total From Investment Operations 0.0556 0.0480 0.0298 0.0324 0.0484 0.0176
Less Distributions:
Dividends From Net Investment Income (0.0556) (0.0480) (0.0298) (0.0323) (0.0481) (0.0176)
Distributions From Net Realized
Gains -- -- -- (0.0001) (0.0003) --
Total Distributions (0.0556) (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 $ 1.00
Total Return++ 5.71% 4.91% 3.02% 3.29% 4.92% 5.89%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 304,342 $ 251,694 $ 338,504 $ 418,644 $ 19,587 $ 4,519
Ratio Of Operating Expenses To
Average Net Assets 0.20% 0.20% 0.20% 0.20% 0.26% 0.45%+
Ratio Of Net Investment Income To
Average Net Assets 5.50% 4.79% 2.99% 2.99% 4.39% 5.85%+
Ratio Of Operating Expenses To
Average Net Assets Without Waivers 0.51% 0.50% 0.52% 0.72% 1.06% 0.94%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 5.19% 4.50% 2.67% 2.48% 3.59% 5.36%+
Net Investment Income Per Share
Without Waivers $ 0.0525 $ 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.
7
<PAGE>
NATIONS GOVERNMENT RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
For a Capital Class Share ENDED ENDED ENDED ENDED ENDED ENDED
outstanding throughout each period: 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations:
Net Investment Income 0.0556 0.0463 0.0278 0.0312 0.0343 0.0168
Net Realized Gain On Investments -- -- -- -- 0.0023 --
Total From Investment Operations 0.0556 0.0463 0.0278 0.0312 0.0366 0.0168
Less Distributions:
Dividends From Net Investment Income (0.0556) (0.0463) (0.0278) (0.0312) (0.0343) (0.0168)
Distributions From Net Realized
Gains -- -- -- -- (0.0023) --
Total Distributions (0.0556) (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 $ 1.00
Total Return++ 5.71% 4.72% 2.82% 3.15% 3.71% 5.57%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 58,121 $ 2 $ 10,819 $ 7,396 $ 1,800 $ 295
Ratio Of Operating Expenses To
Average Net Assets 0.20% 0.32% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To
Average Net Assets 5.48% 4.35% 2.78% 3.07% 4.24% 5.89%+
Ratio Of Operating Expenses To
Average Net Assets Without Waivers 0.53% 0.54% 0.51% 0.64% 0.76% 0.80%+
Ratio Of Net Investment Income To
Average Net Assets Without Waivers 5.15% 4.13% 2.72% 2.88% 3.93% 5.54%+
Net Investment Income Per Share
Without Waivers $ 0.0523 $ 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.
8
<PAGE>
NATIONS MUNICIPAL RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
For a Capital Class Share ENDED ENDED ENDED ENDED ENDED ENDED
outstanding throughout each period: 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0362 0.0313 0.0198 0.0231 0.0356 0.0245
Dividends From Net Investment Income (0.0362) (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 $ 1.00
Total Return++ 3.70% 3.19% 2.00% 2.34% 3.62% 4.62%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 48,482 $ 32,353 $ 35,698 $ 26,145 $ 18,150 $ 5,064
Ratio Of Operating Expenses To
Average Net Assets 0.20% 0.23% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment Income To
Average Net Assets 3.61% 3.36% 1.98% 2.27% 3.38% 4.70%+
Ratio Of Operating Expenses To
Average Net Assets Without Waivers
And/Or Expenses Reimbursed 0.58% 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 3.23% 2.99% 1.85% 2.05% 2.94% 4.16%+
Net Investment Income Per Share
Without Waivers And/Or Expenses
Reimbursed $ 0.0324 $ 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.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
pre-
serve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund 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 Fund; (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. The Fund 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 Fund include instruments
issued by trusts, partnerships or other special purpose issuers, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such issuers.
The Fund 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 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
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Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund 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 Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, a "AAAm" rating signifies that safety is
excellent and indicates that the fund exhibits a superior capacity to maintain
principal value and limit exposure to loss. According to Moody's, "Aaa" money
market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund 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
("Municipal Securities"). At least 80% of the Fund'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 Securities in which the Fund 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 Fund's investments in any of the Municipal Securities 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, (iii) which are rated SP-1 at the
time of investment by 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 Fund also may invest in securities issued by other investment
companies, consistent with its investment objective and policies.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"),
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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; having a long-term rating of "A" or higher from D&P, Fitch, S&P, IBCA,
BankWatch or Moody's in the case of certain bonds which are 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".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and Municipal Securities of the type described above,
which are subject to the alternative minimum tax. However, the Fund generally
intends to be fully invested in federally tax-exempt securities.
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund 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 Fund 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 Fund invests guarantees only the pay-
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ment 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
Fund.
INVESTMENT LIMITATIONS: Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund 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 U.S.
Government Obligations; 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 Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund 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 restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund 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: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), some
of which are described below. A money market fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, and to maintaining a dollar-weighted
average portfolio maturity of 90 days or less. Quality requirements generally
limit investments to U.S. dollar denominated instruments determined to present
minimal credit risks which, at the time of acquisition, are rated in the first
or second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a money market fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
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FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds 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 Fund refers to the
income generated by an investment in the Fund 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 Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
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 Fund's
yield, assuming certain tax brackets for Shareholders.
The yield of the Funds fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in a Fund will
actually yield in the future. Performance quotations will be computed separately
for each class of a Fund'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 Fund's annual report
contains additional performance information and is available on request without
charge from Stephens Inc. ("Stephens").
In addition, a Fund 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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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
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.
THE ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to the
Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Fund, 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 Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Fund. 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 Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Capital Class Shares of the Funds (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 period from March 31, 1995 to December 31, 1995, after waivers,
the Funds paid NationsBank under a prior Advisory Agreement, an
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Advisory Fee at the indicated rates of the Funds' average net assets: Nations
Cash Reserves -- .04%; Nations Treasury Reserves -- .04%; Nations Government
Reserves -- .03%; and Nations Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers, the
Funds paid NBAI under the current Advisory Agreement, an Advisory Fee at the
indicated rates of the Funds' net assets: Nations Cash Reserves -- .03%; Nations
Treasury Reserves -- .03%; Nations Government Reserves -- .02%; and Nations
Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement, an Advisory Fee
at the indicated rates of the Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- 0%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Municipal Reserves. She has
been Portfolio Manager for Nations Municipal Reserves since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities
from contin-
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uing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens, 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 Funds, including providing general oversight of other service
providers, office space, utilities and various legal and administrative services
in connection with the satisfaction of various regulatory requirements
applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to 0.10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1996, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .05%; Nations Treasury Reserves -- .05%; Nations Government
Reserves -- .06%; and Nations Municipal Reserves -- .06%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
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 Funds. No compensation is paid to
Stephens for distribution services for the Capital Class Shares.
NationsBank of Texas, N.A., serves as each Fund'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 Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
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EXPENSES: 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.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), 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 Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. 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. NBAI is the
investment adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Capital Class Shares, the Funds 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 Funds
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, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds which they act in
a fiduciary, agency or custodial capacity and which 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 to institutional investors, including NationsBank, its
affiliates and correspondents, for which they act in a fiduciary, agency or
custodial capacity and 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 Fund shares may receive different compensation with respect to one
particular class of shares over another in a Fund. Information regarding the
Liquidity Class, Adviser Class and Market Class Shares of the Funds is contained
in separate prospectuses that may be obtained from the Trust's distributor. To
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact Nations Fund at 1-800-353-0428.
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 circum-
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stances. 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.
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.
About Your Investment
How To Buy Shares
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.
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 New York Stock 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.
How To Redeem Shares
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 Fund. 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
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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. A
redemption will generally result in a gain or loss for Federal income tax
purposes.
Due to the high cost of maintaining Fund 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.
How To Exchange Shares
The exchange feature enables a Shareholder of Capital Class Shares of a Fund to
acquire Capital Class Shares of another Fund when that Shareholder believes that
a shift between Funds is an appropriate investment decision. An exchange of
Capital Class Shares for Capital Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations 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 90 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. Shareholders should be aware that by electing the
telephone transaction feature, such shareholder may be giving up a measure of
security that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine,
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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 provides written confirmation to Shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each Business Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund 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 Fund 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 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.
TAX INFORMATION: Each Fund is treated as a separate entity for Federal income
tax purposes and is not combined with the Trust's other portfolios. Each Fund
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 Fund
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, the
excess of net short-term capital gain over net long-term capital loss) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to Shareholders.
Each Fund intends to distribute substantially all of its net investment income
(and net 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
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50% of the value of such Fund'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 Fund, 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
Fund'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 Funds 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 Fund
in the year those dividends are paid. However, dividends declared by a Fund 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 Fund
and received by the Shareholders on December 31st, if paid by the Fund 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 Fund 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 Fund 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 individual Shareholder accounts if
the Shareholder has not properly furnished a certified correct Taxpayer
Identification Number or 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 Fund 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 Funds. 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.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforc-
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ing a judgment against a foreign issuer or the accounting, auditing and
financial reporting standards, practices and requirements applicable to foreign
issuers may differ from those applicable to domestic issuers. In addition,
foreign banks are not subject to examination by U.S. Government agencies or
instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements
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will be considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to
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greater fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive
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payments of interest on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor entitles the purchaser
to receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and
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illiquid securities in an amount exceeding 10% of its total assets unless the
Adviser determines that the municipal lease obligations are liquid pursuant to
guidelines established by the Funds' Boards. Pursuant to these guidelines, the
Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible
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under the 1940 Act. As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
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 Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial
29
<PAGE>
support to government-sponsored instrumentalities if it is not obligated to do
so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
30
<PAGE>
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
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+.
31
<PAGE>
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related support-
32
<PAGE>
ing institutions) are considered to have a strong capacity for repayment of
senior short-term promissory obligations. This will normally be evidenced by
many of the characteristics of issuers rated Prime-1, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
33
<PAGE>
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
34
<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
funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Liquidity
Class Shares of the following diversified money
market funds (each, a "Fund"): 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 FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the 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 Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF 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 FUNDS 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 Fund 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
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 12
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 17
About Your Investment
How To Buy Shares 19
How To Redeem Shares 19
How To Exchange Shares 20
Distribution And Shareholder Servicing Plans 20
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 31
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree
of liquidity while providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high
degree of liquidity while providing current income exempt
from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Liquidity Class
Shares is $500,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Liquidity Class Shares of
the Funds. 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 Funds over
specified periods.
ANNUAL OPERATING EXPENSES1
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Cash Nations Nations
Reserves Treasury Reserves Government Reserves
<S> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .15% .15%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees (After Fee Waivers) .15% .15% .15%
Other Expenses (After Expense Reimbursements) .05% .05% .05%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .35% .35% .35%
<CAPTION>
Nations
Municipal Reserves
Advisory Fees (After Fee Waivers) .15%
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees (After Fee Waivers) .15%
Other Expenses (After Expense Reimbursements) .05%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .35%
</TABLE>
1 The adviser, investment sub-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 Funds, and the advisory fees and other
expenses shown reflect the voluntary waivers. The adviser, investment
sub-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, Other Expenses and Total Operating Expenses for
Nations Cash Reserves would be .30%, .60%, .25%, .21% and 1.36% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .65%, .25%,
.21% and 1.41% of average net assets, respectively; for Nations Government
Reserves would be .30%, .60%, .25%, .23% and 1.38% of average net assets,
respectively; and for Nations Municipal Reserves would be .30%, .60%, .25%,
.28% and 1.43% of average net assets, respectively. Additional operating
expense information may be found under "How The Funds Are Managed."
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Liquidity Class Shares of the indicated Fund assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years
<S> <C> <C> <C>
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 Fund'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 Funds. Additional operating expense
information may be found under "How The Funds Are Managed."
5
<PAGE>
Financial Highlights
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose June 19, 1996 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, 1996, which is incorporated by reference into the SAI.
NATIONS CASH RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
For a Liquidity Class Share
outstanding throughout each YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
period: 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0555 0.0471 0.0273 0.0305 0.0482 0.0197
Dividends From Net Investment
Income (0.0555) (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 $ 1.00
Total Return++ 5.70% 4.81% 2.77% 3.09% 4.92% 6.44%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 35,447 $ 2 $ 69,786 $ 19,411 $ 4,776 $ 10,361
Ratio Of Operating Expenses To
Average Net Assets 0.35% 0.38% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 5.38% 4.87% 2.74% 2.96% 4.94% 6.41%+
Ratio Of Operating Expenses To
Average Net Assets Without
Waivers 0.66% 0.61% 0.65% 0.68% 0.85% 0.87%+
Ratio Of Net Investment Income To
Average Net Assets Without
Waivers 5.07% 4.64% 2.64% 2.82% 4.64% 6.09%+
Net Investment Income Per Share
Without Waivers $ 0.0523 $ 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.
6
<PAGE>
NATIONS TREASURY RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
For a Liquidity Class Share
outstanding throughout each YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
period: 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0541 0.0462 0.0263 0.0288 0.0454 0.0173
Net Realized Gain On Investments -- -- -- 0.0001 0.0003 --
Total From Investment Operations 0.0541 0.0462 0.0263 0.0289 0.0457 0.0173
Less Distributions:
Dividends From Net Investment
Income (0.0541) (0.0462) (0.0263) (0.0288) (0.0454) (0.0173)
Distributions From Net Realized
Gains -- -- -- (0.0001) (0.0003) --
Total Distributions (0.0541) (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 $ 1.00
Total Return++ 5.57% 4.71% 2.67% 2.93% 4.64% 5.79%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 11,804 $ 674 $ 14,227 $ 3,369 $ 2,807 $ 2,891
Ratio Of Operating Expenses To
Average Net Assets 0.35% 0.49% 0.55% 0.55% 0.52% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 5.35% 4.50% 2.67% 2.89% 4.62% 5.75%+
Ratio Of Operating Expenses To
Average Net Assets Without
Waivers 0.66% 0.79% 0.87% 1.07% 1.32% 1.04%+
Ratio Of Net Investment Income To
Average Net Assets Without
Waivers 5.04% 4.21% 2.35% 2.37% 3.82% 5.26%+
Net Investment Income Per Share
Without Waivers $ 0.0510 $ 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.
7
<PAGE>
NATIONS GOVERNMENT RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
For a Liquidity Class Share
outstanding throughout each YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
period: 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0537 0.0453 0.0268 0.0302 0.0461 0.0176
Net Realized Gain On Investments -- -- -- -- 0.0023 --
Total From Investment Operations 0.0537 0.0453 0.0268 0.0302 0.0484 0.0176
Less Distributions:
Dividends From Net Investment
Income (0.0537) (0.0453) (0.0268) (0.0302) (0.0461) (0.0176)
Distributions From Net Realized
Gains -- -- -- -- (0.0023) --
Total Distributions (0.0537) (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 $ 1.00
Total Return++ 5.51% 4.59% 2.71% 3.05% 4.70% 6.04%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 129 $ 2 $ 259,836 $ 149,252 $ 12,486 $ 5,589
Ratio Of Operating Expenses To
Average Net Assets 0.35% 0.40% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 5.33% 4.27% 2.68% 2.71% 4.46% 5.86%+
Ratio Of Operating Expenses To
Average Net Assets Without
Waivers 0.68% 0.62% 0.61% 0.74% 0.86% 0.94%+
Ratio Of Net Investment Income To
Average Net Assets Without
Waivers 5.00% 4.05% 2.62% 2.52% 4.18% 5.47%+
Net Investment Income Per Share
Without Waivers $ 0.0504 $ 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.
8
<PAGE>
NATIONS MUNICIPAL RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
For a Liquidity Class Share
outstanding throughout each YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
period: 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0347 0.0304 0.0188 0.0221 0.0346 0.0478
Dividends From Net Investment
Income (0.0347) (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 $ 1.00
Total Return++ 3.52% 3.09% 1.90% 2.24% 3.52% 4.60%+
Ratios To Average Net
Assets/Supplemental Data:
Net Assets, End Of Year (000's) $ 6,734 $ 2,591 $ 13,805 $ 10,766 $ 11,473 $ 8,927
Ratio Of Operating Expenses To
Average Net Assets 0.35% 0.33% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment Income To
Average Net Assets 3.46% 3.26% 1.86% 2.21% 3.36% 5.22%+
Ratio Of Operating Expenses To
Average Net Assets Without
Waivers And/Or Expenses
Reimbursed 0.73% 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 3.08% 2.89% 1.74% 2.00% 2.92% 4.96%+
Net Investment Income Per Share
Without Waivers And/Or Expenses
Reimbursed $ 0.0309 $ 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.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund 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 Fund; (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. The Fund 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 Fund include instruments
issued by trusts, partnerships or other special purpose issuers, including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such issuers.
The Fund 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 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumen-
10
<PAGE>
talities ("U.S. Government Obligations"), repurchase agreements and cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund 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 Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, a "AAAm" rating signifies that safety is
excellent and indicates that the fund exhibits a superior capacity to maintain
principal value and limit exposure to loss. According to Moody's, "Aaa" money
market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' approved list of exempt money market funds.
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund 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
("Municipal Securities"). At least 80% of the Fund'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 Securities in which the Fund 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 Fund's investments in any of the Municipal Securities 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, (iii) which are rated SP-1 at the
time of investment by 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 Fund also may invest in securities issued by other investment
companies, consistent with its investment objective and policies.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered
11
<PAGE>
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; having a long-
term rating of "A" or higher from D&P, Fitch, S&P, IBCA, BankWatch or Moody's in
the case of certain bonds which are 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".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and Municipal Securities of the type described above,
which are subject to the alternative minimum tax. However, the Fund generally
intends to be fully invested in federally tax-exempt securities.
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund 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 Fund 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
12
<PAGE>
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 Fund 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 Fund.
INVESTMENT LIMITATIONS: Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund 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 U.S.
Government Obligations; 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 Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund 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 restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund 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: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"), some
of which are described below. A money market fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, and to maintaining a dollar-weighted
average portfolio maturity of 90 days or less. Quality requirements generally
limit investments to U.S. dollar denominated instruments determined to present
minimal credit risks which, at the time of acquisition, are rated in the first
or second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a money market fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the
13
<PAGE>
quality requirements, other than minimal credit risk. In the event that a Fund's
investment restrictions or permissible investments are more restrictive than the
requirements of Rule 2a-7, the Fund's own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds 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 Fund refers to the
income generated by an investment in the Fund 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 Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
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 Fund's
yield, assuming certain tax brackets for Shareholders.
The yield of the Funds fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in a Fund will
actually yield in the future. Performance quotations will be computed separately
for each class of a Fund'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 Fund's annual report
contains additional performance information and is available on request without
charge from Stephens Inc. ("Stephens").
In addition, a Fund 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.
14
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
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.
THE ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to the
Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Fund, 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 Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of 0.30% of the average daily net assets of each
Fund. 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 Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds 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 Funds (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.
15
<PAGE>
For the fiscal period from March 31, 1995 to December 31, 1995, after waivers,
the Funds paid NationsBank under a prior Advisory Agreement, an Advisory Fee at
the indicated rates of the Funds' average net assets: Nations Cash
Reserves -- .04%; Nations Treasury Reserves -- .04%; Nations Government
Reserves -- .03%; and Nations Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers, the
Funds paid NBAI under the current Advisory Agreement, an Advisory Fee at the
indicated rates of the Funds' net assets: Nations Cash Reserves -- .03%; Nations
Treasury Reserves -- .03%; Nations Government Reserves -- .02%; and Nations
Municipal Reserves -- 0%.
For the fiscal period from January 1, 1996 to April 30, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement, an Advisory Fee
at the indicated rates of the Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- 0%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Municipal Reserves. She has
been Portfolio Manager for Nations Municipal Reserves since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If 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.
16
<PAGE>
OTHER SERVICE PROVIDERS: 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 Funds, including providing general oversight of other service
providers, office space, utilities and various legal and administrative services
in connection with the satisfaction of various regulatory requirements
applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
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 Fund's average daily net
assets.
For the fiscal year ended April 30, 1996, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .05%; Nations Treasury Reserves -- .05%; Nations Government
Reserves -- .06%; and Nations Municipal Reserves -- .06%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
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 Funds. Stephens may pay service fees
or commissions to selling agents that assist customers in purchasing Liquidity
Class Shares of the Funds. See "Distribution And Shareholder Servicing Plans."
NationsBank of Texas, N.A., serves as each Fund'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 Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: 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.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), 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.,
17
<PAGE>
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 Fund is a series of the Trust. Except
for differences between classes of a Fund pertaining to distribution and
shareholder servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. 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. NBAI is the
investment adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Liquidity Class Shares, the Funds also offer the Capital
Class, the Adviser Class and the Market Class Shares. Capital Class Shares,
which do not bear distribution or shareholder servicing fees, 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 and which meet the $1,000,000
minimum initial investment requirement. The 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 and which 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 to institutional investors, including
NationsBank, its affiliates and correspondents, for which they act in a
fiduciary, agency or custodial capacity and 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 Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding the Capital Class, the Adviser Class and the Market
Class Shares of the Funds is contained in separate prospectuses that may be
obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Fund at 1-800-626-2275.
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.
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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About Your Investment
How To Buy Shares
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 New York Stock 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.
How To Redeem Shares
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 Fund. 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. A redemption will generally result in a gain or loss for Federal
income tax purposes.
Due to the high cost of maintaining Fund 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.
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How To Exchange Shares
The exchange feature enables a Shareholder of Liquidity Class Shares of a Fund
to acquire Liquidity Class Shares of another Fund when that Shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange of
Liquidity Class Shares for Liquidity Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations 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 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations 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 90 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. Shareholders should be aware that by electing the
telephone transaction feature, such shareholders may be giving up a measure of
security that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations 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 provides
written confirmation to Shareholders of each telephone share transaction. In
addition, Nations Fund reserves the right to record all telephone conversations.
Distribution And Shareholder Servicing Plans
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 Funds may reimburse Stephens for
certain expenses incurred by Stephens in connection with the distribution of
Liquidity Class Shares of the Funds, 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
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Liquidity Class Shares, (iii) costs of advertising relating to Liquidity 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 Fund 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 Fund'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 Fund 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 Funds' Servicing Plan
described above and the terms of the shareholder servicing agreements. See the
SAI for more details on the Servicing Plan.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each Business Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund 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 Fund 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 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.
TAX INFORMATION: Each Fund is treated as a separate entity for Federal income
tax purposes and is not combined with the Trust's other portfolios. Each Fund
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 Fund
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, the
excess of net short-term capital gain over net long-term capital loss) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to Shareholders.
Each Fund intends to distribute substantially all of its net investment income
(and net 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 Fund'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 Fund, 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 Fund'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 Funds 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 Fund
in the year those dividends are paid. However, dividends declared by a Fund 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 Fund
and received by the Shareholders on December 31st, if paid by the Fund during
the following January.
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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 Fund 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 Fund 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 individual Shareholder accounts if
the Shareholder has not properly furnished a certified correct Taxpayer
Identification Number or 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 Fund 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 Funds. 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.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other
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debt securities. For additional information concerning mortgage-backed
securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved
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during the term of the reverse repurchase agreement, while it will be able to
keep the interest income associated with those portfolio securities. Such
transactions are only advantageous if the interest cost to the Fund of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
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FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on interest
income, possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in
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privately arranged loans acquired by Nations Cash Reserves may be subject to
this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of
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private activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
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subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment,
29
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the income to be earned from the loan justifies the attendant risks. The
aggregate of all outstanding loans of a Fund may not exceed 30% of the value of
its total assets.
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 Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding
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seven days may be considered illiquid if there is no secondary market for such
security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that
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the bond ranks in the lower end of its generic rating category. With regard to
municipal bonds, those bonds in the Aa and A groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1
and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
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
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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 long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited
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incremental risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
NATIONS CASH RESERVES FUND
NATIONS TREASURY RESERVES FUND
NATIONS GOVERNMENT RESERVES FUND
NATIONS MUNICIPAL RESERVES FUND
CAPITAL, ADVISER, LIQUIDITY AND MARKET SHARES
AUGUST 31, 1996
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 (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.
<PAGE>
TABLE OF CONTENTS
The Trust............................................................1
Description of Permitted Investments.................................1
The Adviser .........................................................10
The Administrator and Co-Administrator...............................12
Counsel..............................................................13
Trustees and Officers................................................13
Compensation Table...................................................20
Reporting............................................................21
Investment Limitations...............................................21
Securities Lending...................................................23
Performance Information..............................................23
Purchase and Redemption of Shares....................................26
Distribution and Shareholder Servicing Plans.........................27
Determination of Net Asset Value.....................................33
Taxes................................................................34
Fund Transactions....................................................37
Custodian and Transfer Agent.........................................38
Description of Shares................................................39
Shareholder Liability................................................39
Limitation of Trustees' Liability....................................39
5% Shareholders......................................................39
Experts and Financial Information....................................47
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 fund represents an equal
proportionate interest in that fund. 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 funds (the "Funds"). The Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves funds were
formerly known as the Money Market Fund, Treasury Fund, Government Fund and Tax
Free Money Market Fund, respectively.
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 used by corporations to
finance the shipment and storage of goods and furnish dollar exchanges.
Maturities are generally six months or less.
VARIABLE AND FLOATING-RATE INSTRUMENTS
The Funds 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 Funds 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
_____________________
1 More specifically, Nations Institutional Reserves is the name under which
The Capitol Mutual Funds conducts business.
1
<PAGE>
statistical rating organization2; 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 Fund
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 INSTRUMENTS
Commercial paper which may be purchased by the Funds 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.
ASSET-BACKED SECURITIES
Pursuant to its investment policies, a Fund 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
_____________________
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.
2
<PAGE>
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.
A Fund may invest in non-mortgage asset-backed securtities. Non-mortgage
asset-backed securities include interests in pools of receivables, such as motor
vehicle installment purchase obligations and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset-backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
3
<PAGE>
each vehicle financed, pursuant to the obligations underlying the Asset-backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset-backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset-backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other Asset-backed Securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage-backed securities is at an early stage compared
to mortgage-backed securities. While the market for Asset-backed Securities is
becoming increasingly liquid, the market for mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities is not as
well developed. As stated above, the Adviser, as adviser to each Fund, intends
to limit its purchases of mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities to securities that are readily
marketable at the time of purchase.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (e.g., a Fund) 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 Funds 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 Funds, the Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Funds 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
Funds may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Funds 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 Funds.
4
<PAGE>
REVERSE REPURCHASE AGREEMENTS
Reverse Repurchase Agreements are agreements by which a person (e.g., a Fund)
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 Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
TAX-EXEMPT INSTRUMENTS
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 Fund 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).
5
<PAGE>
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 Fund can simultaneously acquire the right to sell the securities back
to the seller, the issuer, or a third party (the "writer") at an agreed-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 Fund 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 Fund
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 Fund 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 Fund 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 Fund and affect its
share price. The Fund 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 Fund. 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 Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund 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 Fund 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 Fund
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
Fund 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
6
<PAGE>
Each of the Funds 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 Fund's investment policy concerning investments in illiquid securities.
Consistent with Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"), the Adviser will only purchase STRIPS for the Funds 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 Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with respect to a particular instrument
purchased by a Fund, the Fund may demand payment of the principal and accrued
interest on the instrument or may resell it to a third party as specified in the
instruments. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of the instrument if the issuer defaulted on its
payment obligation or during periods the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they
7
<PAGE>
may be unsecured or may be secured by assets not easily liquidated. Moreover,
such loans in most cases are not backed by the taxing authority of the issuers
and may have limited marketability or may be marketable only by virtue of a
provision requiring repayment following demand by the lender. Such loans made by
a Fund may have a demand provision permitting the Fund to require payment within
seven days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is illiquid
and payable on demand may depend on the ability of the municipal borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless a Fund
determines that a particular loan issue, unlike most such loans, has a readily
available market). As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.
Municipal securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
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
8
<PAGE>
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.
Nations Municipal Reserves will instruct its Custodian to segregate and 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 segregate additional liquid
assets on a daily basis so that the value of the segregated assets will be 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 Funds
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 Funds may purchase liquid
and illiquid restricted securities. Purchases of illiquid restricted securities
are subject to the Fund'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 Funds 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 investment
sub-adviser to the Funds of the Trust, pursuant to a Sub-Advisory
9
<PAGE>
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 thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement shall become effective with respect to a Fund
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 Fund (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 Fund 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 Fund) 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 Fund as
of its execution date and, unless sooner terminated, shall continue in full
force and effect for one year, and may be continued with respect to each Fund
thereafter, provided that the continuation of the Agreement is specifically
approved at least annually by (a) (i) the Trust's Board of Trustees or (ii) the
vote of "a majority of the outstanding voting securities" of a Fund (as defined
in Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority
of the 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.
10
<PAGE>
The Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by the Trust (by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund), or by NBAI, or by TradeStreet on 60
days' written notice.
From May 1, 1994 to December 31, 1995, NationsBank, N.A. ("NationsBank") served
as investment adviser to the Funds pursuant to an Investment Advisory Agreement
dated May 1, 1994.
Prior to May 1, 1994, ASB Capital Management, Inc. served as investment adviser
to the Funds pursuant to advisory agreements dated April 20, 1990 and October 1,
1993.
For the fiscal years ended April 30, 1994 and 1995 the Funds paid advisory fees
as follows:
Expenses
Fees Fees Reimb.
Fees Paid Waived Fees Paid Waived by Adviser
1994 1994 1995 1995 1995*
--------- ------- --------- ------- -----
Nations Cash
Reserves $346,549 $122,336 $175,870 $313,476 N/A
Nations Treasury
Reserves 271,241 853,421 142,009 840,932 N/A
Nations Gov't
Reserves 717,571 124,273 185,825 248,859 N/A
Nations Municipal
Reserves 101,016 44,000 51,092 160,180 46,402
* No expenses were reimbursed for 1994. For the fiscal period from May 1, 1995
to December 31, 1995, the Funds paid Advisory Fees to NationsBank and from
January 1, 1996 to April 30, 1996 the Funds paid Advisory Fees to NBAI as
follows:
<TABLE>
<CAPTION>
Fees
Reimb. Fees Reimb.
NationsBank NationsBank by NationsBank NBAI NBAI by
Fees Paid Fees Waived 1996* Fees Paid Fees Waived NBAI
1996* 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $88,594 $583,033 $0 $91,313 $814,949 $0
Nations Treasury
Reserves 104,637 709,688 0 59,180 598,567 0
Nations Gov't.
Reserves 26,062 209,284 0 255 155,885 0
Nations Municipal
Reserves 0 213,304 37,928 0 117,856 0
</TABLE>
For the fiscal period from January 1, 1996 to April 30, 1996 NBAI paid
Sub-Advisory Fees to TradeStreet as follows:
11
<PAGE>
Fees Reimb.
Fees Paid Fees Waived by Adviser
1996 1996 1996
Nations Cash
Reserves $99,689 $0 $0
Nations Treasury
Reserves 72,352 0 0
Nations Gov't.
Reserves 17,175 0 0
Nations Municipal
Reserves 0 12,964 0
ADMINISTRATOR AND CO-ADMINISTRATOR
Stephens Inc. (the "Administrator") serves as administrator of the Trust and
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, serves as the co-administrator of the
Trust. Prior to May 1, 1994, 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 Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to, among
other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the 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 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
Funds, (ii) compute each Fund'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
12
<PAGE>
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, 1994, 1995 and 1996 the Funds paid
administrative fees as follows:
<TABLE>
<CAPTION>
Fees Fees Fees
Fees Paid Waived Fees Paid Waived Fees Paid Waived 1996
1994 1994 1995 1995 1996 1996
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $132,621 $47,375 $100,901 $62,214 $266,305 $259,658
Nations
Treasury
Reserves 104,745 327,406 198,515 129,132 266,472 224,219
Nations
Government
Reserves 273,815 48,921 85,654 59,241 72,398 58,097
Nations
Municipal
Reserves 39,030 16,766 44,802 25,622 63,025 47,362
</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>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANY DIRECTORSHIPS
<S> <C> <C>
Edmund L. Benson, III, 59 Director Director, President and
13
<PAGE>
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves
Richmond, VA 23219 and Nations Fund Trust; Director,
Nations Fund, Inc. and Nations
Fund Portfolios, Inc.
James Ermer, 53 Director Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.
William H. Grigg, 63 Director Since April 1994, Chairman and
Duke Power Co. Chief Executive Officer; November
422 South Church Street 1991 to April 1994, Vice
PB04G Chairman, Duke Power Co.; from
Charlotte, NC 28242-0001 April 1988 to November 1991,
Executive Vice President Customer
Group, Duke Power Co.; Director,
Hatteras Income Securities, Inc.,
Nations Government Income Term
Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc. and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
14
<PAGE>
Thomas F. Keller, 64 Director R.J. Reynolds Industries
Fuqua School of Business Professor of Business
Duke University Administration and Dean, Fuqua
Durham, NC 27706 School of Business, Duke
University; Director, LADD
Furniture, Inc.; Director, Wendy's
International Mentor Growth Fund,
and Cambridge Trust; Director,
Hatteras Income Securities, Inc.,
Nations Government Income Term
Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc. and Nations Fund Portfolios,
Inc.; Trustee, Nations
Institutional Reserves and Nations
Fund Trust.
Carl E. Mundy, Jr., 60 Director Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 23309 1995; Commanding General, Marine
Forces Atlantic, from June 1990
to June 1991; Director, Nations
Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
A. Max Walker, 74* President, Director and Chairman Financial consultant; Formerly,
4580 Windsor Gate Court of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income Securities,
Inc., Nations Government Income
Term Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc. and Nations Fund Portfolios,
Inc.; President and Chairman of
the Board of Trustees, Nations
Institutional Reserves and Nations
Fund Trust.
15
<PAGE>
Charles B. Walker, 57 Director Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
P.O . Box 2189 Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics,
Richmond, VA 23217 and aluminum manufacturing);
since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc. and
Nations Fund Portfolios, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.
Thomas S. Word, Jr., 57* Director Partner, McGuire Woods Battle &
McGuire, Woods, Battle Boothe (law); Director, Vaughan
& Boothe Bassett Furniture Company,
One James Center Director VB Williams Furniture
Richmond, VA 23219 Company, Inc.; Director, Nations
Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
Richard H. Blank, Jr., 39 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Fund Services, Stephens Inc. 1983
to 1990, Associate in Corporate
Finance Department, Stephens
Inc.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Fund, Inc.
and Nations Fund Portfolios, Inc.
Michael W. Nolte, 35 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 43 Assistant Secretary Corporate Syndicate
16
<PAGE>
Stephens Inc. Associate, Stephens Inc.
James E. Banks, 40 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
Corporate Counsel, Federated
Investors; from 1991 to 1993,
Staff Attorney, Securities and
Exchange Commission from 1988 to
1991
Richard H. Rose, 41 Treasurer Since 1994, Vice President,
First Data Investor Services Division Manager, First Data
Group, Inc. Investor Services Group, Inc.,
One Exchange Place since 1988, Senior Vice
Boston, MA 02109 President, The Boston Company
Advisors, Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations Fund,
Inc. and Nations Fund Portfolios,
Inc.
Joseph C. Viselli, 32 Assistant Treasurer Since 1994, Director, First Data
First Data Investor Services Investor Services Group, Inc.,
Group, Inc. since 1992, Assistant Vice
One Exchange Place President, The Boston Company
Boston, MA 02109 Advisors, Inc., since 1989,
Senior Accountant, Price
Waterhouse LLP
Susan Manter, 42 Assistant Treasurer Since 1996, Vice President, First
First Data Investor Services Data Investor Services Group,
Group Inc. Inc., since 1994, Vice President,
One Exchange Place Scudder Stevens and Clark, Inc.,
Boston, MA 02109 previously Senior Manager,
Coopers & Lybrand LLP
</TABLE>
- --------------------
* A. Max Walker and Thomas S. Word, Jr. are considered "interested persons" of
the Trust for purposes of the 1940 Act.
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.
17
<PAGE>
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, Susan Manter,
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.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000
for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for attendance at each other meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees.
Officers receive no direct remuneration in such capacity from the Trust. No
person who is an officer, director, or employee of NationsBank or its affiliates
serves as an officer, Trustee, or employee of the Trust. The Trustees and
officers of Nations Fund own less than 1% of the shares of the Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits each
access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by a Fund or (ii) was
being purchased or sold by a Fund. For purposes of the Code of Ethics, an access
person means (i) a Trustee or officer of the Trust, (ii) any employee of the
Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that the Trust's access persons, other
than its "disinterested" Trustees, submit reports to the Trust's designated
compliance person regarding transactions involving securities which are eligible
for purchase by a Fund.
Under the terms of the Nations Funds Retirement Plan for Eligible Trustees (the
"Retirement Plan"), each trustee may be entitled to certain benefits upon
retirement from the Board of Trustees. Pursuant to the Retirement Plan, the
normal retirement date is the date on which the eligible trustee has attained
age 65 and has completed at least five years of continuous service with one or
more of the open-end investment companies (the "Funds") advised by the Adviser.
If a trustee retires before reaching age 65, no benefits are payable. Each
eligible trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter
18
<PAGE>
coincident with or next following his date of retirement equal to 5% of the
aggregate trustee's fees payable by the Funds during the calendar year in which
the trustee's retirement occurs multiplied by the number of years of service
(not in excess of ten years of service) completed with respect to any of the
Funds. Such benefit is payable to each eligible trustee in quarterly
installments for a period of no more than five years. If an eligible trustee
dies after attaining age 65, the trustee's surviving spouse (if any) will be
entitled to receive 50% of the benefits that would have been paid (or would have
continued to have been paid) to the trustee if he had not died. The Retirement
Plan is unfunded. The benefits owed to each trustee are unsecured and subject to
the general creditors of the Funds.
Under the terms of the Nations Funds Deferred Compensation Plan for Eligible
Trustees (the "Deferred Compensation Plan"), each trustee may elect, on an
annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring trustees to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds. Distributions from the deferring trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five years beginning on the date the deferring trustee's retirement
benefits commence under the Retirement Plan. The Board of Trustees, in its sole
discretion, may accelerate or extend such payments after a trustee's termination
of service. If a deferring trustee dies prior to the commencement of the
distribution of amounts in his deferral account, the balance of the deferral
account will be distributed to his designated beneficiary in a lump sum as soon
as practicable after the trustee's death. If a deferring trustee dies after the
commencement of such distribution, but prior to the complete distribution of his
deferral account, the balance of the amounts credited to his deferral account
will be distributed to his designated beneficiary over the remaining period
during which such amounts were distributable to the trustee. Amounts payable
under the Deferred Compensation Plan are not funded or secured in any way and
deferring trustees have the status of unsecured creditors of the Funds from
which they are deferring compensation.
19
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION PENSION OR
FROM REGISTRANT RETIREMENT
AGGREGATE AND FUND BENEFITS ACCRUED ESTIMATED ANNUAL
COMPENSATION COMPLEX PAID AS PART OF BENEFITS UPON
NAME OF PERSON FROM TO TRUSTEES(3) EXPENSES RETIREMENT
POSITION (1) REGISTRANT (2)
- ----------------- --------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, Trustee
$7,269 $49,119 $19,488 $21,000
James Ermer 7,000 44,250 19,488 21,000
Trustee
William H. Grigg 7,527 66,397 19,488 21,000
Trustee
Thomas F. Keller 7,550 68,597 19,488 21,000
Trustee
A. Max Walker 9,000 75,250 19,488 25,000
Chairman of the Board
Charles B. Walker 6,000 43,750 19,488 21,000
Trustee
Thomas S. Word 7,548 51,579 19,488 21,000
Trustee
Carl E. Mundy, Jr. 3,500 25,875 0 21,000
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 Fund 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.
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including Nations Fund, Inc. (the "Company"), Nations
Fund Portfolios, Inc. ("Portfolios") 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, Portfolios and the Trust, deemed
to be part of the Nations Fund complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L. Benson,
III ($25,744); William H. Grigg ($47,897); Thomas F. Keller ($51,596); and
Thomas S. Word ($54,579).
20
<PAGE>
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 Fund 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.
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 Fund'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 Fund 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 Fund 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 restricted securities and other securities which
are not readily marketable are not to exceed, in the aggregate, 10% of the
Fund's total assets and (c) the Funds (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.
21
<PAGE>
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 Fund 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 Funds are prohibited from acquiring the securities of
other investment companies if, as a result of such acquisition, the Funds
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 Fund's
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of the
Fund. These investment companies typically incur fees that are separate
from those fees incurred directly by the Fund. A Fund's purchase of such
investment company securities results in the layering of expenses, such
that Shareholders 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.
14. Invest in warrants valued at lower of cost or market exceeding 5% of the
Fund's net assets. Included in that amount but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York Stock
Exchange or American Stock Exchange.
22
NON-FUNDAMENTAL INVESTMENT LIMITATIONS:
1. Nations Treasury Reserves may not write covered call options or purchase
put options as long as the Fund 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.
SECURITIES LENDING
To increase return on portfolio securities, all of the Funds, 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 Fund involved exceeds one-third of the value of its total assets taken at
fair market value. A Fund 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 Fund 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 Fund is able to terminate the
securities loan upon notice of not more than five business days and thereby
secure the return to the Fund of securities identical to the transferred
securities upon termination of the loan.
PERFORMANCE INFORMATION
From time to time the Funds 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 Funds refers to the
income generated by an investment in a Fund 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
23
<PAGE>
in a Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
The current yield of the Funds 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 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 Funds 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 Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund 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 Fund's yield, assuming
certain tax brackets for a Shareholder. See "Taxes - Federal Income Tax" below.
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 Funds 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.
24
<PAGE>
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 prices indices of various durations prepared by Shearson Lehman
Brothers and Salomon Brothers, Inc. These indices are not managed for any
investment goal.
The Funds 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, 1996, the yield of each Fund 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 5.22% 5.34% 4.93% 5.05% N/A
Liquidity Class 5.07% 5.19% 4.78% 4.90% N/A
Adviser Class 4.97% 3.08% 4.68% 4.79% N/A
Market Class 0% 0% 0% 0% N/A
Nations Treasury Reserves
25
<PAGE>
Capital Class 5.14% 5.26% 4.85% 4.97% N/A
Liquidity Class 4.99% 5.10% 4.70% 4.81% N/A
Adviser Class 4.89% 5.00% 4.60% 4.71% N/A
Market Class 0% 0% 0% 0% N/A
Nations Government Reserves
Capital Class 5.10% 5.22% 4.77% 4.89% N/A
Liquidity Class 4.95% 5.06% 4.62% 4.73% N/A
Adviser Class 4.85% 4.96% 4.52% 4.63% N/A
Market Class 0% 0% 0% 0% N/A
Nations Municipal Reserves
Capital Class 3.82% 3.89% 3.46% 3.53% 5.54%
Liquidity Class 3.67% 3.73% 3.31% 3.37% 5.32%
Adviser Class 3.57% 3.63% 3.21% 3.27% 5.17%
Market Class 0% 0% 0% 0% 0%
</TABLE>
Market Class Shares of the Funds were not offered during the period ended April
30, 1996. The yield of the Liquidity Class, Adviser Class and Market Class
Shares of each Fund 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 Fund. 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
26
<PAGE>
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 Fund next
determined after receipt by the Distributor of the redemption order.
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 Fund 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
The Trust has adopted a distribution plan (the "Liquidity Class Distribution
Plan" or the "Distribution Plan") for the Liquidity Class Shares of the Funds in
accordance with 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 the
Distribution Plan 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"). The 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. All material amendments of the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
Liquidity Class Shares of each Fund 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 Fund 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 Fund (.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
27
<PAGE>
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 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.
In addition, the Trustees have approved a shareholder servicing plan with
respect to Liquidity Class Shares of the Funds (the "Liquidity Class Servicing
Plan" or the "Servicing Plan"). Pursuant to the Servicing Plan, a Fund 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 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 Fund.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents under the Servicing Plan 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 Plan 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 Distribution Plan and Liquidity Class
Servicing Plan (together, the "Liquidity Class Plans") are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor and/or the
28
<PAGE>
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 Funds 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 Fund, or the Distributor,
or the Trust. Although there is no legal obligation for the Fund to pay expenses
incurred by the Distributor, a Selling Agent or a Servicing Agent in excess of
payments previously made to the Distributor under the 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.
For the fiscal years ended April 30, 1995 and 1996, the Funds paid 12b-1 fees to
Stephens, and shareholder servicing fees to NationsBank for Liquidity Class
Shares in the following amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
12B-1 FEES SHAREHOLDER SERVICING 12B-1 FEES SHAREHOLDER SERVICING
LIQUIDITY CLASS PAID TO PLAN FEES PAID TO PAID TO PLAN FEES PAID TO
FUNDS STEPHENS NATIONSBANK STEPHENS NATIONSBANK
<S> <C> <C> <C> <C>
Nations Cash Reserves $0 $30,902 $13,206 $0
Nations Government Reserves 0 29 58,948 0
Nations Treasury Reserves 0 4,201 9,486 0
Nations Municipal Reserves 0 6,521 3,609 0
</TABLE>
Such distribution expenses for each Fund were attributable to the cost of
marketing the Funds.
MARKET CLASS
The Trust has adopted a distribution plan (the "Market Class Distribution Plan"
or the "Distribution Plan") for the Market Class Shares of the Funds in
accordance with 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 the
Distribution Plan 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"). The 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, and the
Distribution 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 the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
29
<PAGE>
Pursuant to the Distribution Plan, a Fund may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of a Fund'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 Fund'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 Fund's Market Class Shares.
The fees payable under the Market Class Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the 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 Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Trustees have approved a shareholder servicing plan with
respect to Market Class Shares of the Funds (the "Market Class Servicing Plan"
or the Servicing Plan"). Pursuant to the Servicing Plan, a Fund may compensate
or reimburse banks, broker/dealers or other financial institutions that have
entered into Shareholder Servicing Agreements with the Trust for certain
activities or expenses of the Servicing Agents in connection with shareholder
services that are provided by the Servicing Agents. The Servicing Plan 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 Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents under the Servicing
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<PAGE>
Plan 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 Plan 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 shareholder servicing plan with respect to the Market Class Distribution
Plan and the Market Class Servicing 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 Fund. 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 Fund (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 Funds. 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
31
<PAGE>
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.
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 Fund 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 years ended April 30, 1995 and 1996, the Funds paid 12b-1 fees to
Stephens, and shareholder servicing fees to NationsBank for Adviser Class Shares
in the following amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
12B-1 FEES SHAREHOLDER SERVICING 12B-1 FEES SHAREHOLDER SERVICING
ADVISER CLASS PAID TO PLAN FEES PAID TO PAID TO PLAN FEES PAID TO
FUNDS STEPHENS NATIONSBANK STEPHENS NATIONSBANK
<S> <C> <C> <C> <C>
Nations Cash Reserves $0 $344,610 $0 $56,057
Nations Government Reserves 0 255,654 0 157,228
Nations Treasury Reserves 0 318,359 0 68,443
Nations Municipal Reserves 0 166,337 0 81,350
</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 Fund. 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Funds 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.
32
<PAGE>
Net asset value per share of each Fund 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 Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of each
Fund 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 Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in each Fund 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 Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The Funds use of amortized cost and the maintenance of the Funds 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 Funds 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 Funds. Such procedures include
the determination of the extent of deviation, if any, of the Funds current net
asset value per share calculated using available market quotations from the
Funds 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 Funds incur a significant loss
or liability, the Trustees have the authority to reduce pro rata the number of
shares of the Funds in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends while each other Fund must
annually distribute at least 90% of its investment company taxable income.
TAXES
33
<PAGE>
The following is only a summary of certain tax considerations generally
affecting a Fund 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
effective federal individual stated tax rate applicable to ordinary income is
39.6% (marginal rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gains is 28%; and the maximum corporate tax rate
applicable to ordinary income and net capital gains is 35% (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).
It is the policy of each of the Trust's Funds 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 Funds
expects to eliminate or reduce to a nominal amount the federal taxes to which
such Fund may be subject. In order to qualify for treatment as a RIC under the
Code, each Fund 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 Fund'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 of stock or securities, or certain other income,
(ii) the Fund 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 Fund'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 Fund'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 Fund's taxable year, not
more than 25% of the value of its assets may be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry (other than U.S. Government securities or the securities of other
RICs).
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<PAGE>
Notwithstanding the Distribution Requirement described above, which only
requires a Fund 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
Fund 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 Fund 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 Fund 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 Fund 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 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. However, the
foregoing loss disallowance rules are not applicable to shares sold under a
periodic redemption plan.
Interest on indebtedness incurred by Shareholders to purchase or carry shares of
the Fund 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
35
<PAGE>
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 Fund 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 Fund.
Issuers of bonds purchased by the Fund (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 Fund 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 Funds
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 Funds,
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 Fund may be subject to tax on income
derived from obligations of other jurisdictions. The Fund will make periodic
reports to Shareholders of the source of distributions on a state-by-state
basis. Shareholders are urged to consult with their tax advisors regarding
whether, and under what conditions such exemption is available.
FUND 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 Funds. In placing orders, it is the policy of
the Trust to seek to obtain the best net results taking into account such
factors
36
<PAGE>
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 Funds 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 Funds 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.
During the period ended April 30, 1995, certain Funds 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, 1996, Nations Cash Reserves held securities
of such companies as follows: $50,000,000 of C.S. First Boston and $50,000,000
of Merrill Lynch.
37
<PAGE>
CUSTODIAN AND TRANSFER AGENT
NationsBank of Texas, N.A., serves as custodian ("Custodian") for the securities
and cash of each Fund. As custodian, NationsBank of Texas, N.A., maintains
custody of the Funds' securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of the Funds for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Funds all
checks, and receives all dividends and other distributions made on securities
owned by the Funds. 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 Funds'
investments, (ii) $10.00 per repurchase collateral transaction by each Fund, and
(iii) $15.00 per purchase, sale and maturity transaction involving each Fund.
NationsBank of Texas, N.A. is a wholly owned subsidiary of NationsBank
Corporation.
For the fiscal year ended April 30, 1996, the Trust paid $265,472 in aggregate
fees to NationsBank of Texas, N.A. for its services as custodian for the shares
of each Fund.
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Funds. 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.
For the fiscal year ended April 30, 1996, the Trust paid $158,461 in aggregate
fees to First Data for its services as transfer agent for the shares of each
Fund.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds and different classes of each Fund. Each Fund currently
offers Capital Class Shares, Liquidity Class Shares, Adviser Class Shares and
Market Class Shares. Except for differences between classes of a Fund pertaining
to distribution arrangements, each share of a Fund represents an equal
proportionate interest in that Fund with each other share. Shares are entitled
upon liquidation to a pro rata share in the net assets of the Funds.
Shareholders have no preemptive rights. The Declaration of Trust provides that
the Trustees of the Trust may create additional Funds 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 Fund and
would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
Each Fund or class of a Fund will vote separately on matters pertaining solely
to such Fund or class. Such matters include matters relating to a Fund's
investment advisory agreement or a class' distribution plan. All Funds will vote
as a whole on matters affecting all Funds such as the election of Trustees and
the appointment of the Trust's independent accountant.
38
<PAGE>
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 Fund. Information is given as of August 5, 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 36.83%
901 South Main
Dallas, TX 75283
Hare & Co., Bank of New York 27.84%
ATTN Stif/Master Note
One Wall Street
5th Floor
39
<PAGE>
New York, NY 10286
Capital Class Shares
Marmon Industrial Corporation 6.73%
ATTN Treasury Dept.
225 West Washington Street
Suite 1900
Chicago, IL 60606
Liquidity Class Shares
National Instruments Corp. 13.53%
ATTN Shelley Salinas
6504 Bridge Point Park
Austin, TX 78730
Hartsville Oil Mill Inc. 9.47%
ATTN Dwain Watson
P.O. Box 124
Darlington, SC 29532-0124
ABR Information Services Inc. 9.39%
ATTN Vicent Addonisio
34125 US Hwy 19N
Palm Harbor, FL 34684
Duke Flour Daniel 7.14%
ATTN Jackie Plemons
2300 Yorkmont Road
Charlotte, NC 28201
Columbia Go Investors LP 7.08%
201 N. Union St.,Suite 300
Alexandria, VA 22314-2642
Fellowship of Las Colinas 6.81%
ATTN Matt Young
3501 N. MacArthur Blvd.
Suite 500
Irving, TX 75062
Software Spectrum 5.94%
ATTN Scott Hanna
2140 Merritt Drive
Garland, TX 75041
40
<PAGE>
National Association of Home 5.52%
Builders of the U.S.
1201 15th St. NW
Washington, DC 20005-2800
NationsBank as Agents for 5.26%
Hilltop Apartments
ATTN Tracy Sidwell
10 Light St.
Baltimore, MD 21202
Market Class Shares
NationsBank SWP Disbursement GA 32.46%
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
Maryland National Bank 28.95%
ATTN NationsBank SWP Disbursement
901 West Trade Street
LOC Code NC1- 003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement/VA 27.20%
901 West Trade Street
LOC Code NC1- 003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement DC 11.40%
901 West Trade Street
LOC Code NC1- 003-04-38
Charlotte, NC 28255
NATIONS TREASURY RESERVES
Adviser Class Shares
Hare & Co., Bank of New York 86.04%
ATTN Stif/Master Note
One Wall Street
5th Floor
New York, NY 10286
Southmark Working Capital Inc. 5.71%
ATTN Laura Rossi
2711 LBJ Freeway
41
<PAGE>
Suite 950
Dallas, TX 75234
Capital Class Shares
UPS Health & Welfare Plan 19.92%
55 Glenlake Parkway NE
Atlanta, GA 30328
UPS VEBA- Flexible & Healthcare 13.31%
55 Glenlake Plaza NE
Atlanta, GA 30328
NICI - General Inv. Custody Acct. 11.87%
1 NationsBank Plaza
Charlotte, NC 28255
UPS - Teamster 401(K) Treas. Fund 7.34%
55 Glenlake Parkway NE
Atlanta, GA 30328
Liquidity Class Shares
Army Times Publishing Company 65.81%
Profit Sharing Plan
6883 Commerce Dr.
Springfiled, VA 22159
Kay Cannan 32.83%
2204 Miramar
Wichita Falls, TX 76301
Market Class Shares
Maryland National Bank 70.31%
ATTN NationsBank SWP Disbursement
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement/VA 16.93%
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement GA 7.55%
901 West Trade Street
LOC Code NC1-003-04-38
42
<PAGE>
Charlotte, NC 28255
NationsBank SWP Disbursement DC 5.21%
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NATIONS GOVERNMENT RESERVES
Adviser Class Shares
Kings Daughters Hospital 57.94%
1901 SW HK Doogen Loop
Temple, TX 76502
Travis Boats & Motors Inc. 14.96%
13045 Research Blvd.
Austin, TX 78750
Amerisure Property & Casualty LTD 13.97%
13045 Research Blvd.
Austin, TX 78750
TR Kyanite Mining PR SH PL Seg B 9.43%
P.O. Box 486
Dillwyn, VA 23936
Capital Class Shares
Atlas Carpets Mills Inc. 8.85%
ATTN John Torres
2200 Saybrook Ave.
Commerce, CA 90040
Westinghouse Sav Riv 21.30%
Co Pen-Adm
1993 South Centennial Avenue
Building 3, Room 354
Building 992-3W-354
Aiken, SC 29802
Westinghouse Sav Riv 10.53%
Co Pen-Strong
1993 South Centennial Avenue
Building 3, Room 354
Building 992-3W-354
Aiken, SC 29802
43
<PAGE>
Wing Corp MM Mgmt Account 7.77%
Suite 2950
1200 Smith
Houston, TX 77002
Westinghouse Sav Riv 7.01%
Co Pen-RCM
1993 South Centennial Avenue
Building 3, Room 354
Building 992-3W-354
Aiken, SC 29802
Westinghouse Sav Riv 6.23%
Co Pen-Columbia
1993 South Centennial Avenue
Building 3, Room 354
Building 992-3W-354
Aiken, SC 29802
Mississippi Chemical DB - Fix 6/30 6.02%
P.O. Box 388
Yazoo City, MS 39194-0388
Liquidity Class Shares
Feisoo Employee Benefit Trust 98.99%
ATTN Chris Spycher
2601 Cattlemen Road
Sarasota, FL 34242
Market Class Shares
Maryland National Bank 62.50%
ATTN NationsBank SWP Disbursement
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement GA 29.62%
901 West Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NATIONS MUNICIPAL RESERVES
Adviser Class Shares
44
<PAGE>
JB Enterprises 56.69%
ATTN Robert Krantz
P.O. Box 572
Hialeah, FL 33010
Sykes Enterprises Inc. 39.45%
ATTN Scott Be
100 N. Tampa St
Suite 3900
Tampa, FL 33602
Capital Class Shares
TR U/A Andersen Corp VEBA 16.00%
Andersen Corporation
100 Fourth Avenue North
Bayport, MN 55003-1096
I/M Michael W. Lasky 9.45%
23-25 Walker Avenue
Baltimore, MD 21208
SBC Int'l Holdings Inc. - BK NY 6.84%
1 N. Field Ct.
Lake Forest, IL 60045-4811
Global Express Money Orders Inc. 6.53%
P.O. Box 8608
Silver Spring, MD 20907
T/U/W Max Spiegel - Principal 5.88%
Box No. 68
Gladwyne, PA 19035
Liquidity Class Shares
Fedco Management Services Inc. 43.36%
ATTN Odelin Fernandez
631 71st Street
Miami Beach, FL 33141
Advanced Management Incorporated 38.33%
1764 Meadow Lane
Suite 300
McLean, VA 22102-4307
Grand Vacations LTD 16.12%
45
<PAGE>
ATTN Malcolm B McMullen
6355 Mero West Blvd.
Suite 180
Orlando, FL 32835
Market Class Shares
NationsBank SWP Disbursement/VA 48.04%
901 West Trade Street
LOC Code NC1-003-04 38
Charlotte, NC 28255
Maryland National Bank 32.96%
ATTN NationsBank SWP Disbursement
901 West Trade Street
LOC Code NC1-003-04 38
Charlotte, NC 28255
NationsBank SWP Disbursement GA 18.99%
901 West Trade Street
LOC Code NC1-003-04 38
Charlotte, NC 28255
</TABLE>
46
<PAGE>
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 their 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 1996
Annual Financial Report is not incorporated by reference and is not a part of
the registration statement or this SAI.
47
<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, 1996 Statements of
Assets and Liabilities for April 30, 1996 Statements of
Operations for the year ended April 30, 1996
Statements of Changes in Net Assets for the years ended
April 30, 1996 and April 30, 1995 Financial Highlights
Notes to Financial Statements
Report of Independent Accountants, dated June 19, 1996
Included in Part C:
Consent of Independent Accountants
(b) Additional Exhibits
(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) Investment Advisory Agreement with Nationsbanc
Advisors, Inc. Incorporated by Reference to
Post-Effective Amendment No. 17
(5)(b) Sub-Advisory Agreement with TradeStreet Investment
Associates, Inc. Incorporated by Reference to
Post-Effective Amendment No. 17
(6) Distribution Agreement with Stephens, Inc.
Incorporated by Reference to Post-Effective Amendment
No. 10
(7) Not Applicable
(8) 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
<PAGE>
(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
(16) Performance Quotation Computation Incorporated by
Reference to Post-Effective Amendment No. 6
(17) Not Applicable
(18) Plan entered into by Registrant pursuant to Rule
18f-3 under the Investment Company Act of 1940
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
2
<PAGE>
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.;
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
3
<PAGE>
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.
(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).
(c) 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:
(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).
4
<PAGE>
(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
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
5
<PAGE>
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 certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 26th day of August, 1996.
THE CAPITOL MUTUAL FUNDS
By: *
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank
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 August 26, 1996
----------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
* Treasurer August 26, 1996
- ----------------------------------- Vice President
(Richard H. Rose) (Principal Financial and
Accounting Officer)
* Trustee August 26, 1996
- -----------------------------------
(Edmund L. Benson, III)
* Trustee August 26, 1996
- -----------------------------------
(James Ermer)
* Trustee August 26, 1996
- -----------------------------------
(William H. Grigg)
* Trustee August 26, 1996
- -----------------------------------
(Thomas F. Keller)
Trustee August 26, 1996
(Carl E. Mundy, Jr.)
* Trustee August 26, 1996
- -----------------------------------
(Charles B. Walker)
* Trustee August 26, 1996
- -----------------------------------
(Thomas S. Word)
</TABLE>
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
EX-27.011 Financial Data Schedules -- Nations 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
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
<SENIOR-LONG-TERM-DEBT> 0
<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)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 28,719,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,161,756)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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)
<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> 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)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<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)
<DISTRIBUTIONS-OF-GAINS> 0
<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
<GROSS-ADVISORY-FEES> 1,577,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,083,457
<AVERAGE-NET-ASSETS> 368,342,878
<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>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
<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> 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
<ACCUM-APPREC-OR-DEPREC> 0
<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
<NET-CHANGE-FROM-OPS> 28,719,238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,102,564)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,624,470
<TOTAL-LIABILITIES> 107,624,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,703,578
<SHARES-COMMON-STOCK> 175,703,647
<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)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 26,651,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,594,104)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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
<SENIOR-LONG-TERM-DEBT> 0
<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)
<DISTRIBUTIONS-OF-GAINS> 0
<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)
<GROSS-ADVISORY-FEES> 1,472,072
<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
<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> 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
<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
<SENIOR-LONG-TERM-DEBT> 0
<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)
<DISTRIBUTIONS-OF-GAINS> 0
<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
<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> 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)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,890,679
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,384,015)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<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)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 391,486
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 940,667
<AVERAGE-NET-ASSETS> 102,419,904
<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> 0
<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
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 128,969
<SHARES-COMMON-STOCK> 129,395
<SHARES-COMMON-PRIOR> 2,063
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,062)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 129,392
<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> (989)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 346,343
<NUMBER-OF-SHARES-REDEEMED> (220,000)
<SHARES-REINVESTED> 989
<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> 19,672
<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> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> Nations Municipal Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 109,217,208
<INVESTMENTS-AT-VALUE> 109,217,208
<RECEIVABLES> 1,681,977
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 177,815
<TOTAL-ASSETS> 111,077,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 349,845
<TOTAL-LIABILITIES> 349,845
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<PAID-IN-CAPITAL-COMMON> 55,512,046
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<SHARES-COMMON-PRIOR> 64,123,435
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<PER-SHARE-NAV-BEGIN> 1.00
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Nations Municipal Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 109,217,208
<INVESTMENTS-AT-VALUE> 109,217,208
<RECEIVABLES> 1,681,977
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<OTHER-ITEMS-ASSETS> 177,815
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<DISTRIBUTIONS-OF-INCOME> (1,408,074)
<DISTRIBUTIONS-OF-GAINS> 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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<PERIOD-END> APR-30-1996
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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
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,152)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 6,733,502
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<INTEREST-INCOME> 4,088,690
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<NET-CHANGE-FROM-OPS> 3,808,332
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<DISTRIBUTIONS-OF-INCOME> (144,956)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> (56,115,098)
<SHARES-REINVESTED> 135,917
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<AVERAGE-NET-ASSETS> 4,324,787
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
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</TABLE>
[MORRISON & FOERSTER LLP LETTERHEAD]
August 26, 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. 19 and Amendment No. 20
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
August 26, 1996
Page 2
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 "How The Funds Are Managed" in the Prospectuses, which
are included as part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
EX-99.B11
[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. 19 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated June 19, 1996,
relating to the financial statements and financial highlights appearing in the
April 30, 1996 Annual Report to Shareholders of Nations Institutional Reserves,
which is also incorporated by reference into the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"How The Funds Are Managed - Other Service Providers" in the Prospectuses and
under the heading "Experts and Financial Information" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 26, 1996
