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
Supplemented on November 5, 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.
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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.......................................................... 40
Experts and Financial Information........................................ 48
August 31, 1996
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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.
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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
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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.
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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 securities. Non-mortgage
asset-backed securities include interests in pools of receivables, such as motor
vehicle installment purchase obligations and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations 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
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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.
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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).
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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
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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
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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
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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
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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>
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 Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived
1994 1994 1995 1995 1996 1996
<S> <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>
Edmund L. Benson, III, 59 Director Director, President and
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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, 54 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.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Thomas F. Keller, 65 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., 61 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 Financial consultant;
4580 Windsor Gate Court and Chairman Formerly President, A. Max Walker,
Atlanta, GA 30342 of the Board Inc.; 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.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
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., 58* 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., 40 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, 44 Assistant Secretary Corporate Syndicate
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
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 Data Investor Services First Data Investor Services
Group Inc. Group Inc., since 1994, Vice
One Exchange Place President, Scudder Stevens and
Boston, MA 02109 Clark, Inc., 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
Aggregate from Registrant Retirement
Compensation and Fund Benefits Accrued Estimated Annual
Name of Person from Complex Paid as Part of Benefits Upon
Position (1) Registrant (2) to Trustees(3) Expenses Retirement
<S> <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
<PAGE>
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.
Each Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the 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>
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
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
Nations Treasury Reserves
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
26
<PAGE>
respect to Nations Municipal Reserves) for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by the Distributor or the Transfer Agent.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of each 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.
Investment Strategy
Investing the same dollar amount at regular intervals is an investment strategy
known as Dollar Cost Averaging. Using this strategy, investors purchase a
greater number of shares when the fund's price is low and fewer shares when the
price is high. As a result, the average purchase price for shares will be less
than their average cost. Dollar Cost Averaging does not provide assurance of
making a profit or any guarantee against loss in continually declining markets.
Investors should evaluate whether they are able to make regular investments
through periods of declining price levels before deciding to use this investment
technique.
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
27
<PAGE>
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 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
28
<PAGE>
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 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>
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
29
<PAGE>
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.
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.
30
<PAGE>
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 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
31
<PAGE>
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 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>
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
32
<PAGE>
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.
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
33
<PAGE>
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
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
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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).
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
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<PAGE>
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
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
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<PAGE>
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 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.
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<PAGE>
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.
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
38
<PAGE>
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.
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.
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<PAGE>
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.
Percentage of Shares
Name and Address Held of Record Only
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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%
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
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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.
