As filed with the Securities and Exchange Commission
on August 28, 1997
Registration No. 33-33144; 811-6030
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Post-Effective Amendment No. 20 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 21 |X|
(Check appropriate box or boxes)
------------------------
THE CAPITOL MUTUAL FUNDS
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C>
|_| Immediately upon filing pursuant to Rule 485(b); or |X| on September 1, 1997 pursuant to Rule 485(b), or
|_| 60 days after filing pursuant to Rule 485(a), or |_| on (date) pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2) |_| on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of beneficial interest in the Registrant, without par value,
has previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Registrant filed on June 27, 1997, the
notice required by Rule 24f-2 for its fiscal year ended April 30, 1997 (File No.
33-33144; 811-6030).
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 20 to the Registration Statement of
The Capitol Mutual Funds (d/b/a/ Nations Institutional Reserves) (the "Trust")
is being filed in order to provide updated financial information for the Trust's
investment funds (the "Funds"), and to effect certain related, non-material
changes. The series will be marketed through various channels, including banks.
<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A/ NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
Item No. Prospectus
<S> <C>
1. Cover Page ........................................ Cover Page
2. Synopsis ....................................... Expenses Summary
3. Condensed Financial Information..................... Financial Highlights; How
Performance Is Shown
4. General Description of Registrant................... Cover Page; Objectives; How
Objectives Are Pursued;
Organization And History
5. Management of the Fund.............................. How The Funds Are Managed
5A. Management's Discussion of Fund Performance... *
6. Capital Stock and Other Securities.................. How To Buy Shares; How The Funds
Value Their Shares; How
Dividends And Distributions Are
Made; Tax Information
7. Purchase of Securities Being Offered................ Cover Page; How To Buy Shares
8. Redemption or Repurchase............................ How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings................................... Organization And History
PART B
Item No.
10. Cover Page ....................................... Cover Page
1
<PAGE>
11. Table of Contents.................................. Table of Contents
12. General Information and History.................... The Trust
13. Investment Objectives and Policies................. Description of Permitted
Investments; Investment
Limitations; Securities Lending
14. Management of the Registrant....................... Trustees and Officers
15. Control Persons and Principal Holders of Securities..5% Shareholders
16. Investment Advisory and Other Services...............The Adviser; The Administrator
and Co-Administrator;
Distribution and Shareholder
Servicing Plans; and Custodian
and Transfer Agent
17. Brokerage Allocation ................................Portfolio Transactions
18. Capital Stock and Other Securities...................Description of Shares
19. Purchase, Redemption and Pricing of Securities
being Offered..................................Net Asset-Value -- Purchases and
Redemptions; Distributor
20. Tax Status .........................................Taxes
19. Underwriters.........................................Distribution and Shareholder Servicing Plans
20. Calculation of Performance Data......................Performance Information
21. Financial Statements.................................Experts and Financial Information
</TABLE>
2
<PAGE>
PART C
Item No.
Information required to be in Part C is set forth under the appropriate Item,
so numbered, in Part C of this document.
3
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Adviser Class Shares of the following diversified
money market funds (each, a "Fund"): NATIONS CASH RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Adviser Class Shares are offered to institutional investors that
meet the $100,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") dated September 1, 1997 has been filed with the Securities
and Exchange Commission ("SEC") and is available without charge by writing or
calling the Trust at the address or telephone number indicated in the column to
the right. The SAI is incorporated into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference in this Prospectus and other information regarding
registrants that file electronically with the SEC. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds. TradeStreet Investment
Associates, Inc. ("TradeStreet") is investment sub-adviser to the Funds. As used
herein the term "Adviser" shall mean NBAI and/or TradeStreet as the context may
require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. NATIONSBANK
AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO THE TRUST, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH NATIONSBANK, IS THE
SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE TRUST. THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund logo appears here)
Nations Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
ADVISER CLASS SHARES
SEPTEMBER 1, 1997
ADVISER 9/97
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 13
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your Investment
How To Buy Shares 20
How To Redeem Shares 21
How To Exchange Shares 21
Shareholder Servicing Plan 22
How The Funds Value Their Shares 23
How Dividends And Distributions Are Made; Tax
Information 23
Appendix A -- Portfolio Securities 24
Appendix B -- Description Of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income.
(Bullet) Nations Government Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income.
(Bullet) Nations Municipal Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income exempt from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are Pursued
-- Risk Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Adviser Class
Shares is $100,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Adviser Class Shares of the
Funds. There are no transaction fees imposed upon the purchase, redemption or
exchange of shares. The Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in Adviser Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
Advisory Fees (After Fee Waivers) .14% .14% .14% .14%
Rule 12b-1 Fees (Shareholder Servicing Fees) .25% .25% .25% .25%
Other Expenses (After Expense Waivers) .06% .06% .06% .06%
Total Operating Expenses (After Fee and/or Expense
Waivers) .45% .45% .45% .45%
</TABLE>
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Adviser
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
Nations Cash Reserves $5 $14 $25 $57
Nations Treasury Reserves $5 $14 $25 $57
Nations Government Reserves $5 $14 $25 $57
Nations Municipal Reserves $5 $14 $25 $57
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts for the Funds' current fiscal year and reflect anticipated fee
waivers and/or reimbursements. Certain figures contained in the above tables are
based on amounts incurred during each Fund's most recent fiscal year and have
been adjusted as necessary to reflect current service provider fees and/or
reimbursements. There is no assurance that any fee waivers and/or reimbursements
will continue. In particular, to the extent other expenses are less than
expected, waivers and/or reimbursements of management fees, if any, may
decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
The information set forth in the foregoing table and examples relates only to
the Adviser Class Shares. The Trust also offers the Capital Class, Liquidity
Class and Market Class Shares of the Funds. For more complete descriptions of
the Funds' operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees," "Other Expenses" and "Total Operating
Expenses" for Nations Cash Reserves would be .30%, .15% and .70% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .15% and .70%
of average net assets, respectively; for Nations Government Reserves would be
.30%, .15% and .70% of average net assets, respectively; and for Nations
Municipal Reserves would be .30%, .15% and .70% of average net assets,
respectively.
5
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year at Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. For more information see "Organization
And History." Shareholders of the Funds will receive unaudited semi-annual
reports describing the Funds' investment operations and annual financial
statements audited by the Funds' independent accountant.
NATIONS CASH RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR PERIOD
ENDED ENDED ENDED
ADVISER CLASS SHARES: 04/30/97 04/30/96 04/30/95*
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0506 0.0545 0.0316
Dividends from net investment income (0.0506) (0.0545) (0.0316)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.19% 5.58% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 247,551 $ 397,809 $ 47,682
Ratio of operating expenses to average net assets 0.45% 0.45% 0.54%+
Ratio of net investment income to average net assets 5.07% 5.28% 4.71%+
Ratio of operating expenses to average net assets without waivers 0.70% 0.76% 0.77%+
Ratio of net investment income to average net assets without waivers 4.82% 4.97% 4.48%+
Net investment income per share without waivers $ 0.0481 $ 0.0513 $ 0.0300
</TABLE>
* Nations Cash Reserves Adviser Class Shares commenced operations on September
22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
6
<PAGE>
NATIONS TREASURY RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0494 0.0531 0.0308
Dividends from net investment income (0.0494) (0.0531) (0.0308)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.06% 5.45% 3.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 154,256 $ 175,691 $ 55,762
Ratio of operating expenses to average net assets 0.45% 0.45% 0.45%+
Ratio of net investment income to average net assets 4.95% 5.25% 4.54%+
Ratio of operating expenses to average net assets without waivers 0.71% 0.76% 0.75%+
Ratio of net investment income to average net assets without waivers 4.69% 4.94% 4.25%+
Net investment income per share without waivers $ 0.0468 $ 0.0500 $ 0.0288
</TABLE>
* Nations Treasury Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0495 0.0527 0.0299
Dividends from net investment income (0.0495) (0.0527) (0.0299)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.07% 5.39% 3.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 24,845 $ 108,168 $ 99,246
Ratio of operating expenses to average net assets 0.45%(a) 0.45% 0.57%+
Ratio of net investment income to average net assets 4.97% 5.23% 4.10%+
Ratio of operating expenses to average net assets without waivers 0.74%(a) 0.78% 0.79%+
Ratio of net investment income to average net assets without waivers 4.68% 4.90% 3.88%+
Net investment income per share without waivers $ 0.0466(a) $ 0.0494 $ 0.0283
</TABLE>
* Nations Government Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0313 0.0337 0.0199
Dividends from net investment income (0.0313) (0.0337) (0.0199)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.19% 3.43% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 7,296 $ 55,511 $ 64,123
Ratio of operating expenses to average net assets 0.45% 0.45% 0.48%+
Ratio of net investment income to average net assets 3.13% 3.36% 3.11%+
Ratio of operating expenses to average net assets without waivers and/or
expenses reimbursed 0.77% 0.83% 0.84%+
Ratio of net investment income to average net assets without waivers
and/or expenses reimbursed 2.81% 2.98% 2.74%+
Net investment income per share without waivers and/or expenses
reimbursed $ 0.0281 $ 0.0299 $ 0.0176
</TABLE>
* Nations Municipal Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Con-
10
<PAGE>
centration in this context means the investment of more than 25% of the Fund's
assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, an "AAAm" rating signifies that safety
is excellent and indicates that the fund exhibits a superior capacity to
maintain principal value and limit exposure to loss. According to Moody's, "Aaa"
money market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
11
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements and non-negotiable time deposits, provided that repurchase
agreements and non-negotiable time deposits maturing in more than seven days,
illiquid restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund except Nations Municipal Reserves may engage in securities lending
as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of
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the Fund, it may consider terminating sales of its shares in the states
involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a money
market fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Municipal Reserves) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as
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a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Adviser Class Shares, the Funds offer Liquidity Class, Capital
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved invest-
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ments for each Fund, makes decisions with respect to and places orders for each
Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or which have sold shares in
the Fund, if the Adviser believes the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of the average daily net assets of each Fund.
For the services provided and the expenses assumed pursuant to the Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of .033% of the average daily net assets of each
Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Adviser Class Shares (exclusive of Rule 12b-1 fees) of the Funds (as a
percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the Advisory Agreement, an Advisory Fee at the indicated rates of the
Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury Reserves --
.13%; Nations Government Reserves -- .10%; and Nations Municipal Reserves --
.07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the Sub-Advisory Agreement, sub-advisory fees at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .033%; Nations Treasury Reserves
- -- .033%; Nations Government Reserves -- .033%; and Nations Municipal
Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past
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experience includes product management and trading for Interstate/Johnson Lane
and First Charlotte Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government Reserves
- -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. No compensation is
paid to Stephens for distribution services for the Adviser Class Shares.
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NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with The
Bank of New York ("BONY"), called "Custodians") serves as Custodian for the
assets of all Nations Funds except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees at the rate of (i) $300,000 per annum, to be paid monthly in
payments of $25,000 for custodian services for up to and including 50 Funds; and
(ii) $6,000 per annum, to be paid in equal monthly payments, for custodian
services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess including
all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Adviser Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Adviser Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Funds Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and the Trust. The Nations Funds
Family currently has more than 52 distinct investment portfolios and total
assets in excess
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of $27 billion. The Declaration of Trust permits the Trust to offer separate
series of units of beneficial interest ("shares") and different classes of each
series. Each Fund is a series of the Trust. Except for differences between
classes of a Fund pertaining to distribution and shareholder servicing
arrangements, each share of each Fund represents an equal proportionate interest
in that Fund. This Prospectus relates to the Adviser Class Shares of the Trust's
Nations Cash Reserves, Nations Treasury Reserves, Nations Government Reserves
and Nations Municipal Reserves. NBAI is the investment adviser and TradeStreet
is the investment sub-adviser for each Fund.
In addition to the Adviser Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Market Class Shares. Capital Class Shares, which do
not bear distribution or shareholder servicing fees, are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $1,000,000
minimum initial investment requirement. The Liquidity Class Shares are offered
to institutional investors which meet the $500,000 minimum initial investment
requirement and to NationsBank and its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. The Liquidity Class Shares of the Funds bear aggregate
distribution and shareholder servicing fees of up to .85% of the class's average
daily net assets. The Market Class Shares are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for which
they act in fiduciary, agency or custodial capacity and which meet the $250,000
minimum initial investment for such shares. The Market Class Shares bear
aggregate distribution and shareholder servicing fees of up to .45% of the
class's average net assets. A salesperson and any other person or entity
entitled to receive compensation for selling or servicing Fund shares may
receive different compensation with respect to one particular class of shares
over another in a Fund. Information regarding the Capital Class, the Liquidity
Class and the Market Class Shares of the Funds is contained in separate
prospectuses that may be obtained from the Trust's distributor. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
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About Your Investment
How To Buy Shares
Adviser Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Adviser Class Shares is $100,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent. A purchase
order must be received by Stephens or the Transfer Agent by 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves). A
purchase order received after such time will not be accepted; notice thereof
will be given to the institution placing the order and any funds received will
be returned promptly to the sending institution. If Federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. The purchase
price is the net asset value per share next determined after acceptance of the
order by Stephens or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholders
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
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How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within three Business Days after receiving a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by Stephens or the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A redemption will generally result in a gain or loss for Federal
income tax purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investors' account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Adviser Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
The exchange feature enables a shareholder of Adviser Class Shares of a Fund to
acquire Adviser Class Shares of another Fund when that shareholder believes that
a shift between Funds is an appropriate investment decision. An exchange of
Adviser Class Shares for Adviser Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each
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fund. In the case of any shareholder holding a share certificate or
certificates, no exchanges may be made until all applicable share certificates
have been received by the Transfer Agent and deposited in the shareholder's
account. An exchange will be treated for Federal income tax purposes the same as
a redemption of shares. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within 90 days after the shares are purchased.
The Adviser Class Shares exchanged must have a current value of at least
$100,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Adviser Class Shares of the Funds. Pursuant to the Servicing
Plan, the Trust, on behalf of each Fund, may enter into shareholder servicing
agreements ("Servicing Agreements") with banks, broker/dealers and other
financial institutions, including certain affiliates of NationsBank ("Servicing
Agents" also referred to as "Agents"). Under the Servicing Agreements, the
Servicing Agents will provide various shareholder support services to their
customers that are the owners of Adviser Class Shares ("Customers"), including
general shareholder liaison services; processing purchase, exchange and
redemption requests from Customers and placing orders with Stephens or the
Transfer Agent; processing dividend and distribution payments from the Funds on
behalf of Customers; providing sales information periodically to customers
showing their position in Adviser Class Shares; arranging for bank wires; and
providing such other similar services as may reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Adviser Class Shares. The Servicing Plan
also provides that, to the extent any portion of the fees payable under the
Servicing Plan is deemed to be for services primarily intended to result in the
sale of Fund shares, such fees are deemed approved and may be paid under the
Servicing Plan. Accordingly, the Servicing Plan was approved and will be
operated pursuant to Rule 12b-1 under the 1940 Act.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Adviser Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with
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the investment of their assets in Adviser Class Shares. Customers should read
this Prospectus in light of the terms governing their accounts with their
Servicing Agents.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time, (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves), on the day of declaration. Dividends are paid by each Fund in
additional shares of the same class, unless the shareholder has elected to take
such payment in cash, on the first Business Day of each month. Shareholders may
change their election by providing written notice to the Transfer Agent at least
15 days prior to the change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
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Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally is
not exempt from state income taxation. Nations Cash Reserves, Nations Government
Reserves and Nations Treasury Reserves will inform shareholders annually of the
percentage of income and distributions derived from their direct investments in
U.S. Government Obligations. Shareholders should consult their tax advisors to
determine whether any portion of the dividends received from a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide peri-
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odic payments which may consist of both interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Cash Reserves may invest up to 100% of its assets in obligations issued
by banks. Nations Cash Reserves may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements,
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certain of the Funds may borrow primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by
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one such organization, are rated in the highest rating category for short-term
debt obligations given by such organization; or (b) if not rated, are (i)
comparable in priority and security to a class of short-term instruments of the
same issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are
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designed for use in both the U.S. and European securities markets. EDRs, in
bearer form, are designed for use in European securities markets. ADRs, ADSs,
GDRs and EDRs also involve certain risks of other investments in foreign
securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the
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Fund's net obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent
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that municipal participation interests are considered to be "illiquid
securities" such instruments are subject to each Fund's limitation on the
purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Funds's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and
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date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
31
<PAGE>
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which
32
<PAGE>
make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample
33
<PAGE>
margins of protection although not so large as in the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
34
<PAGE>
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
35
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Capital Class Shares of the following diversified
money market funds (each, a "Fund"): NATIONS CASH RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Capital Class Shares are offered to institutional investors that
meet the $1,000,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") dated September 1, 1997 has been filed with the Securities
and Exchange Commission ("SEC") and is available without charge by writing or
calling the Trust at the address or telephone number indicated in the column to
the right. The SAI is incorporated into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference in this Prospectus and other information regarding
registrants that file electronically with the SEC. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds. TradeStreet Investment
Associates, Inc. ("TradeStreet") is investment sub-adviser to the Funds. As used
herein the term "Adviser" shall mean NBAI and/or TradeStreet as the context may
require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO THE TRUST, FOR
WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CAPITAL 9/97
Nations Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
CAPITAL CLASS SHARES
SEPTEMBER 1, 1997
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 13
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your How To Buy Shares 19
Investment How To Redeem Shares 20
How To Exchange Shares 21
How The Funds Value Their Shares 22
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 31
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Government Reserves' investment
objective is to preserve principal value and maintain a high
degree of liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are Pursued
-- Risk Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Capital Class
Shares is $1,000,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Capital Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable to
a hypothetical $1,000 investment in the Capital Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
Advisory Fees (After Fee Waivers) .14% .14% .14% .14%
Other Expenses (After Expense Waivers) .06% .06% .06% .06%
Total Operating Expenses (After Fee and/or
Expense Waivers) .20% .20% .20% .20%
</TABLE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Capital Class Shares assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
Nations Cash Reserves $2 $6 $11 $26
Nations Treasury Reserves $2 $6 $11 $26
Nations Government Reserves $2 $6 $11 $26
Nations Municipal Reserves $2 $6 $11 $26
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts for the Funds' current fiscal year and reflect anticipated fee
waivers and/or reimbursements. Certain figures contained in the above tables are
based on amounts incurred during each Fund's most recent fiscal year and have
been adjusted as necessary to reflect current service provider fees and/or
reimbursements. There is no assurance that any fee waivers and/or reimbursements
will continue. In par-
<PAGE>
ticular, to the extent other expenses are less than expected, waivers and/or
reimbursements of management fees, if any, may decrease. Shareholders will be
notified of any decrease that materially increases Total Operating Expenses. If
current fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. The information set forth in the
foregoing table and examples relates only to the Capital Class Shares. The Trust
also offers the Liquidity Class, the Adviser Class and the Market Class Shares
of the Funds which are subject to the same expenses plus additional distribution
and/or shareholder servicing fees. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees", "Other Expenses" and "Total Operating
Expenses" for Nations Cash Reserves would be .30%, .15% and .45% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .15% and .45%
of average net assets, respectively; for Nations Government Reserves would be
.30%, .15% and .45% of average net assets, respectively; and for Nations
Municipal Reserves would be .30%, .15% and .45% of average net assets,
respectively.
5
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. For more information see "Organization
And History." "Shareholders of the Funds will receive unaudited semi-annual
reports describing the Funds' investment operations and annual financial
statements audited by the Funds' independent accountant.
NATIONS CASH RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0531 0.0570 0.0480 0.0283 0.0315 0.0492 0.0392
Dividends From Net
Investment Income (0.0531) (0.0570) (0.0480) (0.0283) (0.0315) (0.0492) (0.0392)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.44% 5.84% 4.91% 2.87% 3.19% 5.03% 7.35%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $1,684,233 $ 607,643 $ 134,064 $ 109,852 $ 55,739 $ 100,943 $ 19,387
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.29% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment
Income To Average Net
Assets 5.32% 5.53% 4.96% 2.83% 3.15% 4.61% 7.04%+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.45% 0.51% 0.52% 0.56% 0.59% 0.74% 0.79%+
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 5.07% 5.22% 4.73% 2.72% 3.01% 4.32% 6.70%+
Net Investment Income Per
Share Without Waivers $ 0.0506 $ 0.0538 $ 0.0458 $ 0.0272 $ 0.0298 $ 0.0455 $ 0.0373
</TABLE>
* Nations Cash Reserves Capital Class Shares commenced operations on October
10, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS TREASURY RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0519 0.0556 0.0480 0.0298 0.0323 0.0481 0.0176
Net Realized Gain On
Investments -- -- -- -- 0.0001 0.0003 --
Total From Investment
Operations 0.0519 0.0556 0.0480 0.0298 0.0324 0.0484 0.0176
Less Distributions:
Dividends From Net
Investment Income (0.0519) (0.0556) (0.0480) (0.0298) (0.0323) (0.0481) (0.0176)
Distributions From Net
Realized Gains -- -- -- -- (0.0001) (0.0003) --
Total Distributions (0.0519) (0.0556) (0.0480) (0.0298) (0.0324) (0.0484) (0.0176)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.30% 5.71% 4.91% 3.02% 3.29% 4.92% 5.89%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $ 468,975 $ 304,342 $ 251,694 $ 338,504 $ 418,644 $ 19,587 $ 4,519
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.20% 0.20% 0.20% 0.26% 0.45%+
Ratio Of Net Investment
Income To Average Net
Assets 5.20% 5.50% 4.79% 2.99% 2.99% 4.39% 5.85%+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.46% 0.51% 0.50% 0.52% 0.72% 1.06% 0.94%+
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.94% 5.19% 4.50% 2.67% 2.48% 3.59% 5.36%+
Net Investment Income Per
Share Without Waivers $ 0.0493 $ 0.0525 $ 0.0451 $ 0.0267 $ 0.0251 $ 0.0368 $ 0.0161
</TABLE>
* Nations Treasury Reserves Capital Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For a Capital Class YEAR YEAR YEAR YEAR YEAR YEAR
Share outstanding ENDED ENDED ENDED ENDED ENDED ENDED
throughout each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0520 0.0556 0.0463 0.0278 0.0312 0.0343
Net Realized Gain On
Investments -- -- -- -- -- 0.0023
Total From Investment
Operations 0.0520 0.0556 0.0463 0.0278 0.0312 0.0366
Less Distributions:
Dividends From Net
Investment Income (0.0520) (0.0556) (0.0463) (0.0278) (0.0312) (0.0343)
Distributions From Net
Realized Gains -- -- -- -- -- (0.0023)
Total Distributions (0.0520) (0.0556) (0.0463) (0.0278) (0.0312) (0.0366)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.33% 5.71% 4.72% 2.82% 3.15% 3.71%
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 125,377 $ 58,121 $ 2 $ 10,819 $ 7,396 $ 1,800
Ratio Of Operating
Expenses To Average
Net Assets 0.20%(a) 0.20% 0.32% 0.45% 0.45% 0.45%
Ratio Of Net Investment
Income To Average Net
Assets 5.22% 5.48% 4.35% 2.78% 3.07% 4.24%
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.49%(a) 0.53% 0.54% 0.51% 0.64% 0.76%
Ratio Of Net Investment
Income To Average Net 0
Assets Without
Waivers 4.93% 5.15% 4.13% 2.72% 2.88% 3.93%
Net Investment Income
Per Share Without
Waivers $ 0.0491(a) $ 0.0523 $ 0.0439 $ 0.0272 $ 0.0288 $ 0.0313
For a Capital Class PERIOD
Share outstanding ENDED
throughout each period: 04/30/91*
Net Asset Value,
Beginning Of Year $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0168
Net Realized Gain On
Investments --
Total From Investment
Operations 0.0168
Less Distributions:
Dividends From Net
Investment Income (0.0168)
Distributions From Net
Realized Gains --
Total Distributions (0.0168)
Net Asset Value, End Of
Year $ 1.00
Total Return++ 5.57%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 295
Ratio Of Operating
Expenses To Average
Net Assets 0.45%+
Ratio Of Net Investment
Income To Average Net
Assets 5.89%+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.80%+
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 5.54%+
Net Investment Income
Per Share Without
Waivers $ 0.0158
</TABLE>
* Nations Government Reserves Capital Class Shares commenced operations on
January 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expenses ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0337 0.0362 0.0313 0.0198 0.0231 0.0356 0.0245
Dividends From Net
Investment Income (0.0337) (0.0362) (0.0313) (0.0198) (0.0231) (0.0356) (0.0245)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.44% 3.70% 3.19% 2.00% 2.34% 3.62% 4.62%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $ 59,701 $ 48,482 $ 32,353 $ 35,698 $ 26,145 $ 18,150 $ 5,064
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.23% 0.45% 0.45% 0.45% 0.45%+
Ratio Of Net Investment
Income To Average Net
Assets 3.38% 3.61% 3.36% 1.98% 2.27% 3.38% 4.70%+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers
And/Or Expenses
Reimbursed 0.52% 0.58% 0.59% 0.58% 0.66% 0.89% 0.99%+
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers
And/Or Expenses
Reimbursed 3.06% 3.23% 2.99% 1.85% 2.05% 2.94% 4.16%+
Net Investment Income Per
Share Without Waivers
And/Or Expenses
Reimbursed $ 0.0305 $ 0.0324 $ 0.0279 $ 0.0186 $ 0.0203 $ 0.0296 $ 0.0216
</TABLE>
* Nations Municipal Reserves Capital Class Shares commenced operations on
October 23, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks.
Con-
10
<PAGE>
centration in this context means the investment of more than 25% of the Fund's
assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, an "AAAm" rating signifies that safety
is excellent and indicates that the fund exhibits a superior capacity to
maintain principal value and limit exposure to loss. According to Moody's, "Aaa"
money market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
11
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
12
<PAGE>
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements and non-negotiable time deposits, provided that repurchase
agreements and non-negotiable time deposits maturing in more than seven days,
illiquid restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund except Nations Municipal Reserves may engage in securities lending
as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of
13
<PAGE>
the Fund, it may consider terminating sales of its shares in the states
involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a money
market fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Municipal Reserves) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized". That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown
14
<PAGE>
as a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Capital Class Shares, the Funds offer Liquidity Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's agent or by calling Nations Funds at the toll-free number indicated
on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved invest-
15
<PAGE>
ments for each Fund, makes decisions with respect to and places orders for each
Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or which have sold shares in
the Fund, if the Adviser believes the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of the average daily net assets of each Fund.
For the services provided and the expenses assumed pursuant to the Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of .033% of the average daily net assets of each
Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Capital Class Shares of the Funds (as a percentage of average daily net assets)
to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an advisory fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury Reserves
- -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after
waivers, NBAI paid TradeStreet under the current Sub-Advisory Agreement,
sub-advisory fees at the indicated rates of the Funds' net assets: Nations Cash
Reserves -- .033%; Nations Treasury Reserves -- .033%; Nations Government
Reserves -- .033%; and Nations Municipal Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past
16
<PAGE>
experience includes product management and trading for Interstate/Johnson Lane
and First Charlotte Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government Reserves
- -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. No compensation is
paid to Stephens for distribution services for the Capital Class Shares.
NationsBank of Texas, N.A., ("NationsBank of Texas" and collectively with The
Bank of New
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York ("BONY"), called "Custodians"), serves as Custodian for the assets of all
Nations Funds except the international portfolios. NationsBank of Texas is
located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly owned subsidiary
of NationsBank Corporation. In return for providing custodial services, the
Custodian is entitled to receive, in addition to out-of-pocket expenses, fees at
the rate of (i) $300,000 per annum, to be paid monthly in payments of $25,000
for custodian services for up to and including 50 Funds; and (ii) $6,000 per
annum, to be paid in equal monthly payments, for custodian services for each
additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Capital Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Capital Class Shares may bear certain class specific expenses. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Funds Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and the Trust. The Nations Funds
Family currently has more than 52 distinct investment portfolios and total
assets in excess of $27 billion. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates to the Capital
Class Shares of the Trust's Nations Cash Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal
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Reserves. NBAI is the investment adviser and TradeStreet is the investment
sub-adviser for each Fund.
In addition to the Capital Class Shares, the Funds also offer the Liquidity
Class, the Adviser Class and the Market Class Shares. The Liquidity Class Shares
are offered to institutional investors which meet the $500,000 minimum initial
investment requirement and to NationsBank and its affiliates and correspondents,
for the investment of their own funds or funds for which they act in a
fiduciary, agency or custodial capacity. The Liquidity Class Shares of the Funds
bear aggregate distribution and shareholder servicing fees of up to 0.85% of the
class's average daily net assets. The Adviser Class Shares are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds which they act in
a fiduciary, agency or custodial capacity and which meet the $100,000 minimum
initial investment requirement. The Adviser Class Shares also bear shareholder
servicing fees of up to .25% of the class's average net assets. The Market Class
Shares are offered to institutional investors, including NationsBank, its
affiliates and correspondents, for which they act in a fiduciary, agency or
custodial capacity and which meet the $250,000 minimum initial investment for
such shares. The Market Class Shares bear aggregate distribution and shareholder
servicing fees of up to .45% of the class's average net assets. A salesperson
and any other person or entity entitled to receive compensation for selling or
servicing Fund shares may receive different compensation with respect to one
particular class of shares over another in a Fund. Information regarding the
Liquidity Class, Adviser Class and Market Class Shares of the Funds is contained
in separate prospectuses that may be obtained from the Trust's distributor. To
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
About Your Investment
How To Buy Shares
Capital Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Capital Class Shares is $1,000,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent. A purchase
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order must be received by Stephens or the Transfer Agent by 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves). A
purchase order received after such time will not be accepted; notice thereof
will be given to the institution placing the order and any funds received will
be returned promptly to the sending institution. If Federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. The purchase
price is the net asset value per share next determined after acceptance of the
order by Stephens or the Transfer Agent.
The agents are responsible for transmitting orders for purchases by their
customers and delivering acquired funds on a timely basis. Stephens is also
responsible for transmitting orders its receives to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholder
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within three Business Days after receiving a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by Stephens or the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on
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the day the redemption order is effective. A redemption will generally result in
a gain or loss for Federal income tax purposes.
The Trust may redeem an investor's account upon 30 day's written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an agent pursuant to
arrangements between the agent and its customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Capital Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
The exchange feature enables a shareholder of Capital Class Shares of a Fund to
acquire Capital Class Shares of another Fund when that shareholder believes that
a shift between Funds is an appropriate investment decision. An exchange of
Capital Class Shares for Capital Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Capital Class Shares exchanged must have a current value of at least
$1,000,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
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How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time, (12 noon, Eastern time, with respect to Nations Municipal
Reserves), on the day of declaration. Dividends are paid by each Fund in
additional shares of the same class, unless the shareholder has elected to take
such payment in cash, on the first Business Day of each month. Shareholders may
change their election by providing written notice to the Transfer Agent at least
15 days prior to the change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally
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is not exempt from state income taxation. Nations Cash Reserves, Nations
Government Reserves and Nations Treasury Reserves will inform shareholders
annually of the percentage of income and distributions derived from their direct
investments in U.S. Government Obligations. Shareholders should consult their
tax advisors to determine whether any portion of the dividends received from a
Fund is exempt from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage
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loans, the interest in which is in most cases issued and guaranteed by an agency
or instrumentality of the U.S. Government, though not necessarily by the U.S.
Government itself. Mortgage-backed securities include mortgage pass-through
securities, collateralized mortgage obligations ("CMOs"), parallel pay CMOs,
planned amortization class CMOs ("PAC Bonds") and stripped mortgage-backed
securities ("SMBS"), including interest-only and principal-only SMBS. SMBS may
be more volatile than other debt securities. For additional information
concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Cash Reserves may invest up to 100% of its assets in obligations issued
by banks. Nations Cash Reserves may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise
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might require the untimely disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated,
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are (i) comparable in priority and security to a class of short-term instruments
of the same issuer that has such rating(s), or (ii) of comparable quality to
such instruments as determined by the Board of Trustees on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets.
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ADRs, ADSs, GDRs and EDRs also involve certain risks of other investments in
foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
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The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments
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are subject to each Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A
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risk associated with repurchase agreements is the failure of the seller to
repurchase the securities as agreed, which may cause a Fund to suffer a loss if
the market value of such securities declines before they can be liquidated on
the open market. Repurchase agreements with a duration of more than seven days
are considered illiquid securities and are subject to the limit stated above. A
Fund may enter into joint repurchase agreements jointly with other investment
portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or spon-
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sored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which
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make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample
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margins of protection although not so large as in the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
33
<PAGE>
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
34
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Liquidity Class Shares of the following diversified
money market funds (each, a "Fund"): NATIONS CASH RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Liquidity Class Shares are offered to institutional investors that
meet the $500,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") dated September 1, 1997 has been filed with the Securities
and Exchange Commission ("SEC") and is available without charge by writing or
calling the Trust at the address or telephone number indicated in the column to
the right. The SAI is incorporated into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference in this Prospectus and other information regarding
registrants that file electronically with the SEC. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds. TradeStreet Investment
Associates, Inc. ("TradeStreet") is investment sub-adviser to the Funds. As used
herein the term "Adviser" shall mean NBAI and/or TradeStreet as the context may
require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO THE TRUST, FOR
WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Funds logo appears here)
<PAGE>
Nations Cash
Reserves
Nations Treasury
Reserves
Nations Government
Reserves
Nations Municipal
Reserves
LIQUIDITY CLASS SHARES
SEPTEMBER 1, 1997
LIQUIDITY 9/97
<PAGE>
About The Funds
Table Of Contents
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 13
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 18
About Your Investment
How To Buy Shares 19
How To Redeem Shares 20
How To Exchange Shares 21
Distribution And Shareholder Servicing Plans 21
How The Funds Value Their Shares 22
How Dividends And Distributions Are Made; Tax
Information 23
Appendix A -- Portfolio Securities 24
Appendix B -- Description Of Ratings 32
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income.
(Bullet) Nations Government Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income.
(Bullet) Nations Municipal Reserves'investment objective is to preserve
principal value and maintain a high degree of liquidity while providing
current income exempt from Federal income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are Pursued
-- Risk Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Liquidity Class
Shares is $500,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Liquidity Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable to
a hypothetical $1,000 investment in the Liquidity Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Cash Nations Nations
Reserves Treasury Reserves Government Reserves
Advisory Fees (After Fee Waivers) .14% .14% .14%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees (After Fee Waivers) .15% .15% .15%
Other Expenses (After Expense Waivers) .06% .06% .06%
Total Operating Expenses (After Fee and/or Expense
Waivers) .35% .35% .35%
<CAPTION>
Nations
Municipal Reserves
Advisory Fees (After Fee Waivers) .14%
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees (After Fee Waivers) .15%
Other Expenses (After Expense Waivers) .06%
Total Operating Expenses (After Fee and/or Expense
Waivers) .35%
</TABLE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Liquidity Class Shares of the indicated Fund assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 Year 3 Years 5 Years
Nations Cash Reserves $4 $11 $20
Nations Treasury Reserves $4 $11 $20
Nations Government Reserves $4 $11 $20
Nations Municipal Reserves $4 $11 $20
<CAPTION>
10 Years
<S> <C>
Nations Cash Reserves $44
Nations Treasury Reserves $44
Nations Government Reserves $44
Nations Municipal Reserves $44
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts for the Funds' current fiscal year and reflect anticipated fee
waivers and/or reimbursements. Certain figures contained in the above tables are
based on amounts incurred during each Fund's most recent
4
<PAGE>
fiscal year and have been adjusted as necessary to reflect current service
provider fees and/or reimbursements. There is no assurance that any fee waivers
and/or reimbursements will continue. In particular, to the extent other expenses
are less than expected, waivers and/or reimbursements of management fees, if
any, may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts in the "Examples" above may increase. The
information set forth in the foregoing table and examples relates only to the
Liquidity Class Shares. The Trust also offers Capital Class, Adviser Class and
Market Class Shares of the Funds. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees", "Rule 12b-1 Fees", "Shareholder Servicing
Fees", "Other Expenses" and "Total Operating Expenses" for Nations Cash Reserves
would be .30%, .60%, .25%, .15% and 1.30% of average net assets, respectively;
for Nations Treasury Reserves would be .30%, .65%, .25%, .15% and 1.35% of
average net assets, respectively; for Nations Government Reserves would be .30%,
.60%, .25%, .15% and 1.30% of average net assets, respectively; and for Nations
Municipal Reserves would be .30%, .60%, .25%, .15% and 1.30% of average net
assets, respectively.
5
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. For more information see "Organization
and History." Shareholders of the Funds will receive unaudited semi-annual
reports describing the Funds' investment operations and annual financial
statements audited by the Funds' independent accountant.
NATIONS CASH RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0516 0.0555 0.0471 0.0273 0.0305 0.0482 0.0197
Dividends From Net
Investment Income (0.0516) (0.0555) (0.0471) (0.0273) (0.0305) (0.0482) (0.0197)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.28% 5.70% 4.81% 2.77% 3.09% 4.92% 6.44%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 419,851 $ 35,447 $ 2 $ 69,786 $ 19,411 $ 4,776 $ 10,361
Ratio Of Operating
Expenses To Average Net
Assets 0.35% 0.35% 0.38% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment
Income To Average Net
Assets 5.17% 5.38% 4.87% 2.74% 2.96% 4.94% 6.41%+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.60% 0.66% 0.61% 0.65% 0.68% 0.85% 0.87%+
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.92% 5.07% 4.64% 2.64% 2.82% 4.64% 6.09%+
Net Investment Income Per
Share Without Waivers $ 0.0491 $ 0.0523 $ 0.0448 $ 0.0262 $ 0.0287 $ 0.0447 $ 0.0186
</TABLE>
* Nations Cash Reserves Liquidity Class Shares commenced operations on January
9, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS TREASURY RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0504 0.0541 0.0462 0.0263 0.0288 0.0454 0.0173
Net Realized Gain On
Investments -- -- -- -- 0.0001 0.0003 --
Total From Investment
Operations 0.0504 0.0541 0.0462 0.0263 0.0289 0.0457 0.0173
Less Distributions:
Dividends From Net
Investment Income (0.0504) (0.0541) (0.0462) (0.0263) (0.0288) (0.0454) (0.0173)
Distributions From Net
Realized Gains -- -- -- -- (0.0001) (0.0003) --
Total Distributions (0.0504) (0.0541) (0.0462) (0.0263) (0.0289) (0.0457) (0.0173)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.15% 5.57% 4.71% 2.67% 2.93% 4.64% 5.79%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 81,575 $ 11,804 $ 674 $ 14,227 $ 3,369 $ 2,807 $ 2,891
Ratio Of Operating
Expenses To Average Net
Assets 0.35% 0.35% 0.49% 0.55% 0.55% 0.52% 0.55%+
Ratio Of Net Investment
Income To Average Net
Assets 5.05% 5.35% 4.50% 2.67% 2.89% 4.62% 5.75%+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.61% 0.66% 0.79% 0.87% 1.07% 1.32% 1.04%+
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.79% 5.04% 4.21% 2.35% 2.37% 3.82% 5.26%+
Net Investment Income Per
Share Without Waivers $ 0.0478 $ 0.0510 $ 0.0431 $ 0.0232 $ 0.0213 $ 0.0349 $ 0.0160
</TABLE>
* Nations Treasury Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0505 0.0537 0.0453 0.0268 0.0302 0.0461
Net Realized Gain On
Investments -- -- -- -- -- 0.0023
Total From Investment
Operations 0.0505 0.0537 0.0453 0.0268 0.0302 0.0484
Less Distributions:
Dividends From Net
Investment Income (0.0505) (0.0537) (0.0453) (0.0268) (0.0302) (0.0461)
Distributions From Net
Realized Gains -- -- -- -- -- (0.0023)
Total Distributions (0.0505) (0.0537) (0.0453) (0.0268) (0.0302) (0.0484)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.19% 5.51% 4.59% 2.71% 3.05% 4.70%
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 6,482 $ 129 $ 2 $ 259,836 $ 149,252 $ 12,486
Ratio Of Operating
Expenses To Average
Net Assets 0.35%(a) 0.35% 0.40% 0.55% 0.55% 0.55%
Ratio Of Net Investment
Income To Average Net
Assets 5.07% 5.33% 4.27% 2.68% 2.71% 4.46%
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.64%(a) 0.68% 0.62% 0.61% 0.74% 0.86%
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 4.78% 5.00% 4.05% 2.62% 2.52% 4.18%
Net Investment Income
Per Share Without
Waivers $ 0.0476(a) $ 0.0504 $ 0.0430 $ 0.0262 $ 0.0274 $ 0.0422
<CAPTION>
<S> <C>
For a Liquidity Class
Share outstanding PERIOD ENDED
throughout each period: 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0176
Net Realized Gain On
Investments --
Total From Investment
Operations 0.0176
Less Distributions:
Dividends From Net
Investment Income (0.0176)
Distributions From Net
Realized Gains --
Total Distributions (0.0176)
Net Asset Value, End Of
Year $ 1.00
Total Return++ 6.04%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 5,589
Ratio Of Operating
Expenses To Average
Net Assets 0.55%+
Ratio Of Net Investment
Income To Average Net
Assets 5.86%+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.94%+
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 5.47%+
Net Investment Income
Per Share Without
Waivers $ 0.0170
</TABLE>
* Nations Government Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0323 0.0347 0.0304 0.0188 0.0221 0.0346 0.0478
Dividends From Net
Investment Income (0.0323) (0.0347) (0.0304) (0.0188) (0.0221) (0.0346) (0.0478)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.29% 3.52% 3.09% 1.90% 2.24% 3.52% 4.60%+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 54,677 $ 6,734 $ 2,591 $ 13,805 $ 10,766 $ 11,473 $ 8,927
Ratio Of Operating
Expenses To Average
Net Assets 0.35% 0.35% 0.33% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net Investment
Income To Average Net
Assets 3.23% 3.46% 3.26% 1.86% 2.21% 3.36% 5.22%+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers And/Or
Expenses Reimbursed 0.67% 0.73% 0.69% 0.67% 0.76% 0.99% 0.81%+
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers And/Or
Expenses Reimbursed 2.91% 3.08% 2.89% 1.74% 2.00% 2.92% 4.96%+
Net Investment Income
Per Share Without
Waivers And/Or
Expenses Reimbursed $ 0.0291 $ 0.0309 $ 0.0270 $ 0.0176 $ 0.0192 $ 0.0285 $ 0.0455
</TABLE>
* Nations Municipal Reserves Liquidity Class Shares commenced operations on
June 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Con-
10
<PAGE>
centration in this context means the investment of more than 25% of the Fund's
assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, an "AAAm" rating signifies that safety
is excellent and indicates that the fund exhibits a superior capacity to
maintain principal value and limit exposure to loss. According to Moody's, "Aaa"
money market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
11
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participators in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
12
<PAGE>
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements and non-negotiable time deposits, provided that repurchase
agreements and non-negotiable time deposits maturing in more than seven days,
illiquid restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund except Nations Municipal Reserves may engage in securities lending
as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of
13
<PAGE>
the Fund, it may consider terminating sales of its shares in the states
involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a money
market fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Municipal Reserves) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as
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a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by an investment in the Fund is assumed
to be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Liquidity Class Shares, the Funds offer Capital Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved invest-
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ments for each Fund, makes decisions with respect to and places orders for each
Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or which have sold shares in
the Fund, if the Adviser believes the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of the average daily net assets of each Fund.
For the services provided and the expenses assumed pursuant to the Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of .033% of the average daily net assets of each
Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Liquidity Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees)
of the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an Advisory Fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury Reserves
- -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the current Sub-Advisory Agreement, sub-advisory fees at the indicated
rates of the Funds' net assets: Nations Cash Reserves -- .033%; Nations Treasury
Reserves -- .033%; Nations Government Reserves -- .033%; and Nations Municipal
Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First
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Charlotte Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Portfolios. For the services rendered pursuant to the Administration and Co-
Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government Reserves
- -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Liquidity Class Shares of the Funds. See "Distribution And
Shareholder Servicing Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" and collectively with The
Bank of New York ("BONY") called "Custodians") serves as Custodian for the
assets of all Nations Funds except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly owned
subsidiary of
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NationsBank Corporation. In return for providing custodial services, the
Custodian is entitled to receive, in addition to out-of-pocket expenses, fees at
the rate of (i) $300,000 per annum, to be paid monthly in payments of $25,000
for custodian services for up to and including 50 Funds; and (ii) $6,000 per
annum, to be paid in equal monthly payments, for custodian services for each
additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion and (ii) 1/2 of one basis point on the excess, including
all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Liquidity Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Liquidity Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Funds Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and the Trust. The Nations Funds
Family currently has more than 52 distinct investment portfolios and total
assets in excess of $27 billion. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates to the Liquidity
Class Shares of the Trust's Nations Cash Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal Reserves. NBAI is the
investment adviser and TradeStreet is the investment sub-adviser for each Fund.
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In addition to the Liquidity Class Shares, the Funds also offer the Capital
Class, the Adviser Class and the Market Class Shares. Capital Class Shares,
which do not bear distribution or shareholder servicing fees, are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $1,000,000
minimum initial investment requirement. The Adviser Class Shares are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $100,000
minimum initial investment requirement. The Adviser Class Shares also bear
shareholder servicing fees of up to .25% of the class's average net assets. The
Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for which they act in a
fiduciary, agency or custodial capacity and which meet the $250,000 minimum
initial investment for such shares. The Market Class Shares bear aggregate
distribution and shareholder servicing fees of up to .45% of the class's average
net assets. A salesperson and any other person or entity entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding the Capital Class, the Adviser Class and the Market
Class Shares of the Funds is contained in separate prospectuses that may be
obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
About Your Investment
How To Buy Shares
Liquidity Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Liquidity Class Shares is $500,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent. A purchase
order must be received by Stephens or the
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Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Municipal Reserves). A purchase order received after such time will
not be accepted; notice thereof will be given to the institution placing the
order and any funds received will be returned promptly to the sending
institution. If Federal funds are not available by 4:00 p.m., Eastern time, the
order will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by Stephens or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
for the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholders
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within three Business Days after receiving a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by Stephens or the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A redemption will generally result in a gain or loss for Federal
income tax purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
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Prior to effecting a redemption of Liquidity Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
The exchange feature enables a shareholder of Liquidity Class Shares of a Fund
to acquire Liquidity Class Shares of another Fund when that shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange of
Liquidity Class Shares for Liquidity Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Liquidity Class of Shares exchanged must have a current value of at least
$500,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
Distribution And Shareholder Servicing Plans
DISTRIBUTION AGREEMENT AND DISTRIBUTION PLAN: The distribution agreement and the
distribution plan adopted by the Liquidity Class Shareholders (the "Plan")
provide that the Liquidity Class Shares of the Funds may reimburse Stephens for
certain expenses incurred by Stephens in connection with the distribution of
Liquidity Class Shares of the Funds, including (i) the costs of printing
prospectuses and other similar materials for persons other than current
shareholders, (ii) the cost of complying with Federal and state laws relating to
the distribution of Liquidity Class Shares, (iii) costs of advertising relating
to Liquidity Class Shares, and (iv) expenses incurred in connection with the
promotion and sale of Liquidity Class Shares. Under the Plan, the Trust may
reimburse Stephens only for actual expenses incurred up to .30% of the average
daily net assets of the Liquidity Class Shares. Currently, the Trust is
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not reimbursing Stephens for any portion of such expenses. Unreimbursed expenses
incurred by Stephens in a given year may not be recovered by Stephens in
subsequent years.
In addition to the reimbursement fee, the Plan permits the Trust to pay Stephens
an annual fee of up to .30% of the average daily net assets of the Liquidity
Class Shares of Nations Cash Reserves, Nations Government Reserves, and Nations
Municipal Reserves and .35% of the average daily net assets of the Liquidity
Class Shares of Nations Treasury Reserves which Stephens can use to compensate
certain financial institutions that provide administrative and/or distribution
services to Liquidity Class shareholders. Currently, the Trust is not
compensating Stephens for providing such services. Certain state securities laws
may require those financial institutions providing such distribution services to
register as dealers pursuant to state law.
SHAREHOLDER SERVICING PLAN: The shareholder servicing plan ("Servicing Plan")
permits each Fund to compensate certain banks, broker/dealers or other financial
institutions including certain affiliates of NationsBank that have entered into
shareholder servicing agreements ("Servicing Agents" also referred to as
"Agents") for certain shareholder support services that are provided by the
Servicing Agents to their customers that own Liquidity Class Shares
("Customers"). Payments under the Servicing Plan will be calculated daily and
paid monthly at a rate set from time to time by the Board of Trustees provided
that the annual rate may not exceed .25% of the average daily net asset value of
a Fund's Liquidity Class Shares. The shareholder services provided by Servicing
Agents may include general shareholder liaison services; processing purchase,
exchange and redemption requests from Customers and placing orders with Stephens
or the Transfer Agent; processing dividend and distribution payments from a Fund
on behalf of Customers; providing sales information periodically to Customers,
including information showing their positions in Liquidity Class Shares;
providing sub-accounting with respect to Liquidity Class Shares beneficially
owned by Customers or the information necessary for sub-accounting; responding
to inquiries from Customers concerning their investment in Liquidity Class
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the shareholder servicing agreements. See the
SAI for more details on the Servicing Plan.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time, (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves), on the day of declaration. Dividends are paid by each Fund in
additional shares of the same class, unless the shareholder has elected to take
such payment in cash, on the first Business Day of each month. Shareholders may
change their election by providing written notice to the Transfer Agent at least
15 days prior to the change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally is
not exempt from state income taxation. Nations Cash Reserves, Nations Government
Reserves and Nations Treasury Reserves will inform shareholders annually of the
percentage of income and distributions derived from their direct investments in
U.S. Government Obligations. Shareholders should consult their tax advisors to
determine whether any portion of the dividends received from a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares
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(or are deemed to receive in the case of exchanges) and the cost of your shares.
See "Taxes -- Disposition of Fund Shares" in the SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present
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minimal credit risks. For purposes of the foregoing, total assets may be
determined on the basis of the bank's most recent annual financial statements.
Nations Cash Reserves may invest up to 100% of its assets in obligations issued
by banks. Nations Cash Reserves may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insol-
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vent, the Fund's use of the proceeds of the agreement may be restricted pending
a determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. In addition, there
is a risk of delay in receiving collateral or securities or in repurchasing the
securities covered by the reverse repurchase agreement or even of a loss of
rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Funds only enter into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if a Fund
does not establish and maintain a segregated account (as described above). Under
the requirements of the 1940 Act, a Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, a Fund's asset coverage and other
factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. Nations Cash Reserves will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two NRSROs are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keep-
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ing standards than those applicable to domestic companies, and securities of
foreign issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities markets. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits
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and GICs that do not provide for payment to a Fund within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities. In addition, interests in privately arranged loans acquired
by Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a
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Fund are in most cases revenue securities and are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
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permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which
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the trust grants to the counterparty certain of its rights with respect to the
securities owned by the trust in exchange for the obligation of the counterparty
to make payments to the trust according to an established formula. The trust
obligations purchased by the Fund must satisfy the quality and maturity
requirements generally applicable to the Fund pursuant to Rule 2a-7 under the
1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
32
<PAGE>
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
com-
33
<PAGE>
pany fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
34
<PAGE>
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
35
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Market Class Shares of the following diversified money
market funds (each, a "Fund"): NATIONS CASH RESERVES, NATIONS TREASURY RESERVES,
NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Market Class Shares are offered to institutional investors that meet
the $250,000 minimum initial investment requirement and to NationsBank, N.A.
("NationsBank"), its affiliates and correspondents, for the investment of their
own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the Nations Cash
information about the Trust that a prospective Reserves
investor should know before investing. Investors Nations Treasury
are advised to read this Prospectus and retain it Reserves
for future reference. A Statement of Additional Nations Government
Information ("SAI") dated September 1, 1997 has Reserves
been filed with the Securities and Exchange Nations Municipal
Commission ("SEC") and is available without charge Reserves
by writing or calling the Trust at the address or
telephone number indicated in the column to the MARKET CLASS SHARES
right. The SAI is incorporated into this Prospectus SEPTEMBER 1, 1997
by reference. The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI,
material incorporated by reference in this
Prospectus and other information regarding
registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO THE TRUST, FOR
WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
THE TRUST.
For Fund information call:
1-800-626-2275
THESE SECURITIES HAVE NOT BEEN APPROVED OR or write
DISAPPROVED BY THE SECURITIES AND EXCHANGE Nations Institutional
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR Reserves
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY c/o Stephens Inc.
STATE SECURITIES COMMISSION PASSED UPON THE One NationsBank Plaza
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY 33rd Floor
REPRESENTATION TO THE CONTRARY IS A CRIMINAL Charlotte, NC 28255
OFFENSE. (Nations Funds logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 10
How Objectives Are Pursued 10
General Investment Policies 13
How Performance Is Shown 14
How The Funds Are Managed 15
Organization And History 19
About Your Investment
How To Buy Shares 20
How To Redeem Shares 21
How To Exchange Shares 21
Distribution And Shareholder Servicing Plans 22
How The Funds Value Their Shares 24
How Dividends And Distributions Are Made; Tax
Information 24
Appendix A -- Portfolio Securities 25
Appendix B -- Description Of Ratings 33
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 52
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are Pursued
-- Risk Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Market Class Shares
is $250,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Market Class Shares of the
Funds. There are no transaction fees imposed upon the purchase, redemption or
exchange of shares. The Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in Market Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Cash Treasury Government Municipal
Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .14% .14% .14% .14%
Rule 12b-1 Fees (Absent Fee Waivers) .10% .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Waivers) .06% .06% .06% .06%
Total Operating Expenses (After Fee and/or Expense
Waivers) .55% .55% .55% .55%
</TABLE>
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Market
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $6 $18 $31 $69
Nations Treasury Reserves $6 $18 $31 $69
Nations Government Reserves $6 $18 $31 $69
Nations Municipal Reserves $6 $18 $31 $69
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above table are based on
estimated amounts for the Funds' current fiscal year. Certain figures contained
in the above tables are based on amounts incurred during each Fund's most recent
fiscal year and have been adjusted as necessary to reflect current service
provider fees and/or reimbursements. There is no assurance that any fee waivers
and/or reimbursements will continue. In particular, to the extent other expenses
are less than expected, waivers and/or reimbursements of management fees, if
any, may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
The information set forth in the foregoing table and examples relates only to
the Market Class Shares. The Trust also offers the Capital Class, Liquidity
Class and Adviser Class Shares of the Funds. Long-term shareholders in a Fund
could pay more in sales charges than the economic equivalent of the maximum
front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. For a more complete description
of the Funds' operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees", "Rule 12b-1 Fees", "Other Expenses" and
"Total Operating Expenses" for Nations Cash Reserves would be .30%, .20%, .15%
and .90% of average net assets, respectively; for Nations Treasury Reserves
would be .30%, .20%, .15% and .90% of average net assets, respectively; for
Nations Government Reserves would be .30%, .20%, .15% and .90% of average net
assets, respectively; and for Nations Municipal Reserves would be .30%, .20%,
.15% and .90% of average net assets, respectively.
5
<PAGE>
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. For more information see "Organization
And History." Shareholders of the Funds will receive unaudited semi-annual
reports describing the Funds' investment operations and annual financial
statements audited by the Funds' independent accountant.
NATIONS CASH RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
Period
Ended
<S> <C>
04/30/97*
Net asset value, beginning of period $ 1.00
Net investment income 0.0493
Dividends from net investment income (0.0493)
Net asset value, end of period $ 1.00
Total Return++ 5.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 333,000
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.97%+
Ratio of operating expenses to average net assets without waivers 0.80%+
Ratio of net investment income to average net assets without waivers 4.72%+
Net investment income per share without waivers $ 0.0468
</TABLE>
* Nations Cash Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
6
<PAGE>
NATIONS TREASURY RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
Period
Ended
04/30/97*
<S> <C>
Net asset value, beginning of period $ 1.00
Net investment income 0.0481
Dividends from net investment income (0.0481)
Net asset value, end of period $ 1.00
Total Return++ 4.92%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 123,396
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.85%+
Ratio of operating expenses to average net assets without waivers 0.81%+
Ratio of net investment income to average net assets without waivers 4.59%+
Net investment income per share without waivers $ 0.0455
</TABLE>
* Nations Treasury Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
Period
Ended
04/30/97*
<S> <C>
Net asset value, beginning of period $ 1.00
Net investment income 0.0482
Dividends from net investment income (0.0482)
Net asset value, end of period $ 1.00
Total Return++ 4.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 218,499
Ratio of operating expenses to average net assets 0.55%+(a)
Ratio of net investment income to average net assets 4.87%+
Ratio of operating expenses to average net assets without waivers 0.84%+(a)
Ratio of net investment income to average net assets without waivers 4.58%+
Net investment income per share without waivers $ 0.0453(a)
</TABLE>
* Nations Government Reserves Market Class Shares commenced operations on May
3, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
Period
Ended
04/30/97*
<S> <C>
Net asset value, beginning of period $ 1.00
Net investment income 0.0301
Dividends from net investment income (0.0301)
Net asset value, end of period $ 1.00
Total Return++ 3.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 78,300
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.03%+
Ratio of operating expenses to average net assets without waivers 0.87%+
Ratio of net investment income to average net assets without waivers 2.71%+
Net investment income per share without waivers $ 0.0269
</TABLE>
* Nations Municipal Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
9
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligation issued
by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment
10
<PAGE>
of more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in the
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A"
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is rated "AAAm" by S&P and "Aaa" by Moody's Investor
Services ("Moody's"). According to S&P, an "AAAm" rating signifies that safety
is excellent and indicates that the fund exhibits a superior capacity to
maintain principal value and limit exposure to loss. According to Moody's, "Aaa"
money market ratings are judged to be of the best quality. In addition, Nations
Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
11
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in 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.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
Each Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; and (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements and non-negotiable time deposits, provided that repurchase
agreements and non-negotiable time deposits maturing in more than seven days,
illiquid restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund except Nations Municipal Reserves may engage in securities lending
as described in this Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of
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the Fund, it may consider terminating sales of its shares in the states
involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a money
market fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Municipal Reserves) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of
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the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Market Class Shares, the Funds offer Liquidity Class, Adviser
Class and Capital Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved invest-
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ments for each Fund, makes decisions with respect to and places orders for each
Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions including, in the case of agency transactions, financial
institutions which are affiliated with NationsBank or which have sold shares in
the Fund, if the Adviser believes the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of the average daily net assets of each Fund.
For the services provided and the expenses assumed pursuant to the Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of .033% of the average daily net assets of each
Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Market Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees) of
the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an advisory fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury Reserves
- -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the current Sub-Advisory Agreement, sub-advisory fees at the indicated
rates of the Funds' net assets: Nations Cash Reserves -- .033%; Nations Treasury
Reserves -- .033%; Nations Government Reserves -- .033%; and Nations Municipal
Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management
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Group at NationsBank. Ms. Duck has worked in the investment community since
1980. Her past experience includes product management and trading for
Interstate/Johnson Lane and First Charlotte Corporation. Ms. Duck graduated from
King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves. She has
been Portfolio Manager for Nations Cash Reserves since 1994. Prior to assuming
her position with TradeStreet, she was Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Sherman has
worked in the investment community since 1981. Her past experience includes
investment research for William Lowry & Associates. Ms. Sherman received a B.S.
in Business Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government Reserves
- -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides
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that Stephens has the exclusive right to distribute shares of the Funds.
Stephens may pay service fees or commissions to selling agents that assist
customers in purchasing Market Class Shares of the Funds. See "Distribution And
Shareholder Servicing Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" and collectively with The
Bank of New York ("BONY") called "Custodians") serves as Custodian for the
assets of all Nations Funds except the international portfolios. NationsBank of
Texas is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees at the rate of (i) $300,000 per annum, to be paid monthly in
payments of $25,000 for custodian services for up to and including 50 Funds; and
(ii) $6,000 per annum, to be paid in equal monthly payments, for custodian
services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and Nations Bank of
Texas, whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets
of all Nations Funds except the international portfolios, for which BONY is
already serving as Custodian. BONY is located at 90 Washington Street, New York,
New York 10286. In return for providing sub-custodial services, BONY receives,
in addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion and (ii) 1/2 of one basis point on the excess, including
all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Market Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Market Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The Trust's
fiscal year end is April 30. The Trust is a member of the Nations Funds Family
which consists of Nations Fund Trust, Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc. and the Trust. The Nations Funds
Family currently has more than 52 distinct investment portfolios and total
assets in excess of $27 billion. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and shareholder
servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates to the Market Class
Shares of the Trust's Nations Cash Reserves, Nations Treasury Reserves, Nations
Government Reserves and Nations Municipal Reserves. NBAI is the investment
adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Market Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Adviser Class Shares. Capital Class Shares, which do
not bear distribution or shareholder servicing fees, are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $1,000,000
minimum initial investment requirement. The Liquidity Class Shares are offered
to institutional investors which meet the $500,000 minimum initial investment
requirement and to NationsBank and its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. The Liquidity Class Shares of the Funds bear aggregate
distribution and shareholder servicing fees of up to .85% of the class's average
daily net assets. The Adviser Class Shares are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity and which meet the $100,000 minimum initial investment
requirement. The Adviser Class Shares also bear shareholder servicing fees of up
to .25% of the class's average net assets. A salesperson and any other person or
entity entitled to receive compensation for selling or servicing Fund shares may
receive different compensation with respect to one particular class of shares
over another in a Fund. Information regarding the Capital Class, the Liquidity
Class and the Adviser Class Shares of the Funds is contained in separate
prospectuses that may be obtained from the Trust's distributor. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
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The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
About Your Investment
How To Buy Shares
Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Market Class Shares is $250,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent (as defined
below). A purchase order must be received by Stephens or the Transfer Agent by
3:00 p.m., Eastern time (12 noon, Eastern time, with respect to Nations
Municipal Reserves). A purchase order received after such time will not be
accepted; notice thereof will be given to the institution placing the order and
any funds received will be returned promptly to the sending institution. If
Federal funds are not available by 4:00 p.m., Eastern time, the order will be
canceled. The purchase price is the net asset value per share next determined
after acceptance of the order by Stephens or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholder
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm
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that instructions communicated by telephone are genuine, and if Nations Funds
and its service providers fail to employ such measures, they may be liable for
any losses due to unauthorized or fraudulent instructions. Nations Funds
provides written confirmation to shareholders of each telephone share
transaction. In addition, Nations Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within three Business Days after receiving a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by Stephens or the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A redemption will generally result in a gain or loss for Federal
income tax purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Market Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
The exchange feature enables a shareholder of Market Class Shares of a Fund to
acquire Market Class Shares of another Fund when that shareholder believes that
a shift between Portfolios is an appropriate investment decision. An exchange of
Market Class Shares for Market Class Shares of another Fund is made on the basis
of the next calculated net asset value per share of each Fund after the exchange
order is received.
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The Funds and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Market Class Shares exchanged must have a value of at least $250,000.
Nations Funds and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
Distribution And Shareholder
Servicing Plans
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan (the "Plan") with respect to the Market Class
Shares of each Fund. Pursuant to the Plan, each Fund may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Fund's Market Class Shares. Payments under the Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trust's
Board of Trustees, provided that the annual rate may not exceed .20% of the
average daily net asset value of each Fund's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Funds shall
be obligated to make any payments under the Plan that exceed the maximum amounts
payable under the Rules of Conduct of the National Association of Securities
Dealers, Inc. Certain state securities laws may require those financial
institutions providing distribution services to register as dealers pursuant to
state law.
The fees payable under the Plan are used primarily to compensate or reimburse
Stephens for distribution services provided by it, and related expenses
incurred, in connection with Market Class Shares, including payments by Stephens
to compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Sales Support Agreements with Stephens ("Selling
Agents"), for sales support services provided, and related expenses incurred, by
such
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Selling Agents. Payments under the Plan may be made with respect to: (i)
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by Stephens or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively; (ii)
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of Stephens or Selling Agents, attributable
to distribution or sales support activities, respectively; (iv) opportunity
costs relating to the foregoing (which may be calculated as a carrying charge on
Stephens' or Selling Agent's unreimbursed expenses incurred in connection with
distribution or sales support activities, respectively); and (v) any other costs
and expenses relating to distribution or sales support activities. The overhead
and other office expenses referenced above may include, without limitation, (i)
the expenses of operating Stephens' or Selling Agents' offices in connection
with the sale of Fund shares, including lease costs, the salaries and employee
benefit costs of administrative, operations and support personnel, utility
costs, communication costs and the costs of stationery and supplies, (ii) the
costs of client sales seminars and travel related to distribution and sales
support activities, and (iii) other expenses relating to distribution and sales
support activities.
SHAREHOLDER SERVICING PLAN: The Trustees have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to Market Class Shares of the Funds.
Pursuant to the Servicing Plan, the Trust, on behalf of each Fund, may enter
into shareholder servicing agreements ("Servicing Agreements") with banks,
broker/dealers and other financial institutions, including certain affiliates of
NationsBank ("Servicing Agents" also referred to as "Agents"). Under the
Servicing Agreements, the Servicing Agents will provide various shareholder
support services to their customers ("Customers") that are the owners of Market
Class Shares, including general shareholder liaison services; processing
purchase, exchange and redemption requests from Customers and placing orders
with Stephens or the transfer agent; processing dividend and distribution
payments from the Funds on behalf of Customers; providing information
periodically to customers showing their position in Market Class Shares;
arranging for bank wires; and providing such other similar services as may
reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Market Class Shares.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Market Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with the
investment of their assets in Market Class Shares. Customers should read this
Prospectus in light of the terms governing their accounts with their Servicing
Agents.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
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How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Municipal
Reserves), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets of each Portfolio are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Portfolios at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time, (12 noon, Eastern time, with respect to Nations Municipal
Reserves), on the day of declaration. Dividends are paid by each Fund in
additional shares of the same class, unless the shareholder has elected to take
such payment in cash, on the first Business Day of each month. Shareholders may
change their election by providing written notice to the Transfer Agent at least
15 days prior to the change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund1s net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally
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is not exempt from state income taxation. Nations Cash Reserves, Nations
Government Reserves and Nations Treasury Reserves will inform shareholders
annually of the percentage of income and distributions derived from their direct
investments in U.S. Government Obligations. Shareholders should consult their
tax advisors to determine whether any portion of the dividends received from a
Fund is exempt from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves1 net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued
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and guaranteed by an agency or instrumentality of the U.S. Government, though
not necessarily by the U.S. Government itself. Mortgage-backed securities
include mortgage pass-through securities, collateralized mortgage obligations
("CMOs"), parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and
stripped mortgage-backed securities ("SMBS"), including interest-only and
principal-only SMBS. SMBS may be more volatile than other debt securities. For
additional information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Cash Reserves may invest up to 100% of its assets in obligations issued
by banks. Nations Cash Reserves may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
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Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
will limit purchases of commercial instruments to instruments which: (a) if
rated by at least two NRSROs are rated in the highest rating category for
short-term debt obligations given by such organizations, or if only rated by one
such organization, are rated in the highest rating category for short-term debt
obligations given by such organization; or (b) if not rated, are (i) comparable
in priority and security to a class of short-term instruments of the same issuer
that has such rating(s), or (ii) of comparable quality to such instruments as
determined by
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the Board of Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of the
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts
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or funding agreements (each referred to as a "GIC") are investment instruments
issued by highly rated insurance companies. Pursuant to such contracts, a Fund
may make cash contributions to a deposit fund of the insurance company's general
or separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Portfolio
holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the
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party selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by
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commitments solely to facilitate portfolio liquidity and without intending to
exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repur-
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chase agreements jointly with other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest
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rate and an unconditional right of demand on the part of the holder to receive
payment of unpaid principal and accrued interest. An instrument with a demand
period exceeding seven days may be considered illiquid if there is no secondary
market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that
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the bond ranks in the lower end of its generic rating category. With regard to
municipal bonds, those bonds in the Aa and A groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1
and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is
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judged to be "outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations." D-1 indicates very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are considered to be minor. D-1- indicates high certainty
of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small. D-2 indicates good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obli-
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gations and deposit obligations of the entities to which the rating has been
assigned. The BankWatch short-term ratings specifically assess the likelihood of
an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
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NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
NATIONS CASH RESERVES
NATIONS TREASURY RESERVES
NATIONS GOVERNMENT RESERVES
NATIONS MUNICIPAL RESERVES
CAPITAL, ADVISER, LIQUIDITY AND MARKET SHARES
SEPTEMBER 1, 1997
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 September 1, 1997 (the "Prospectuses").
Prospectuses may be obtained through the Distributor, Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
<PAGE>
TABLE OF CONTENTS
The Trust.....................................................................1
Description of Permitted Investments..........................................1
The Adviser ..................................................................8
The Administrator and Co-Administrator........................................11
Counsel.......................................................................12
Trustees and Officers.........................................................12
Compensation Table............................................................19
Reporting.....................................................................20
Investment Limitations........................................................20
Securities Lending............................................................22
Performance Information.......................................................22
Purchase and Redemption of Shares.............................................25
Distribution and Shareholder Servicing Plans..................................25
Determination of Net Asset Value..............................................31
Taxes.........................................................................32
Fund Transactions.............................................................36
Custodian and Transfer Agent..................................................37
Description of Shares.........................................................38
Shareholder Liability.........................................................38
Limitation of Trustees' Liability.............................................38
5% Shareholders...............................................................39
Experts and Financial Information.............................................46
SEPTEMBER 1, 1997
<PAGE>
THE TRUST
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)1, is
an open-end management investment company established as a Massachusetts
business trust under a Declaration of Trust dated January 22, 1990. The
Declaration of Trust permits the Trust to offer separate series of units of
beneficial interest ("shares"). Each share of each fund represents an equal
proportionate interest in that fund. See "Description of Shares." This Statement
of Additional Information ("SAI") relates to the Trust's Nations Cash Reserves,
Nations Treasury Reserves, Nations Government Reserves and Nations Municipal
Reserves (the "Funds"). Nations Cash Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal Reserves 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 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
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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 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
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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
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
3
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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.
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
4
<PAGE>
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).
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
5
<PAGE>
securities the Trust will consider "maturity" to be the first date on which it
has the right to demand payment from the writer of the put although the final
maturity of the security is later than such date.
SEPARATELY TRADED REGISTERED INTEREST AND PRINCIPAL SECURITIES
Each of the 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 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
6
<PAGE>
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 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
7
<PAGE>
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 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 continuation of
the Advisory and Sub-Advisory Agreements was last approved by the Board of
Trustees at the October 11-12, 1996 Board of Trustees meeting.
8
<PAGE>
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.
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.
For the fiscal year ended April 30, 1995 the Funds paid Advisory fees as
follows:
Fees Expenses Reimb.
Fees Paid Waived by Adviser
1995 1995 1995*
Nations Cash Reserves $175,870 $313,476 N/A
Nations Treasury Reserves 142,009 840,932 N/A
Nations Government Reserves 185,825 248,859 N/A
Nations Municipal Reserves 51,092 160,180 46,402
9
<PAGE>
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. NBAI NBAI Fees Reimb.
NationsBank NationsBank by NationsBank Fees Fees by
Fees Paid Fees Waived 1996* Paid Waived NBAI
---------
1996* 1996 1996 1996 1996
--------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $88,594 $583,033 $0 $91,313 $814,949 $0
Nations Treasury
Reserves 104,637 709,688 0 59,180 598,567 0
Nations Government
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 year from May 1, 1996 to April 30, 1997 the Funds paid Advisory
fees to NBAI as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived 1997 Adviser
1997 1997
---- ----
Nations Cash Reserves $2,357,981.18 $2,797,837.24 $0
Nations Treasury Reserves 780,877.72 1,033,412.10 0
Nations Government Reserves 277,002.18 556,881.07 0
Nations Municipal Reserves 137,642.13 437,536.71 0
For the fiscal period from January 1, 1996 to April 30, 1996 NBAI paid
Sub-Advisory fees to TradeStreet as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived 1996 Adviser
1996 1996
---- ----
Nations Cash Reserves $99,689 $0 $0
Nations Treasury Reserves 72,352 0 0
Nations Government Reserves 17,175 0 0
Nations Municipal Reserves 0 12,964 0
For the fiscal year from May 1, 1996 to April 30, 1997 NBAI paid Sub-Advisory
fees to TradeStreet as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived 1997 Sub-Adviser
1997 1997
---- ----
Nations Cash Reserves $567,140 $0 $0
Nations Treasury Reserves 199,572 0 0
Nations Government Reserves 91,727 0 0
Nations Municipal Reserves 32,121 0 0
10
<PAGE>
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.
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, a combined 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
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.
11
<PAGE>
For the fiscal years ended April 30, 1995, 1996 and 1997 the Funds paid combined
administrative fees as follows:
<TABLE>
<CAPTION>
Net Net Fees Net Net Fees Net Net Fees
Fees Paid Waived Fees Paid Fees Paid Waived Waived
1995 1995 1996 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $100,901 $62,214 $266,305 $259,658 $206,640 $1,511,966
Nations
Treasury
Reserves 198,515 129,132 266,472 224,219 67,964 536,800
Nations
Government
Reserves 85,654 59,241 72,398 58,097 33,788 244,173
Nations
Municipal
Reserves 44,802 25,622 63,025 47,362 23,309 168,418
</TABLE>
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500, Washington,
D.C. 20006-1812.
TRUSTEES AND OFFICERS
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and the officers of the Trust and their principal occupations for the
last five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANY DIRECTORSHIPS
<S> <C> <C>
Edmund L. Benson, III, 60 Trustee Director, President and
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., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
James Ermer, 54 Trustee 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;
12
<PAGE>
Trustee, Nations Institutional
Reserves and Nations Fund Trust;
Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.
William H. Grigg, 64 Trustee Since June 1997, Chairman
Duke Power Co. Emeritus; June 1997 to April
422 South Church Street 1994, Chairman and Chief
PB04G Executive Officer; November 1991
Charlotte, NC 28242-0001 to April 1994, Vice Chairman,
Duke Power Co.; from 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., Nations
Fund Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves and
Nations Fund Trust.
Thomas F. Keller, 65 Trustee 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
and Mentor Funds; 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., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves
13
<PAGE>
and Nations Fund Trust.
Carl E. Mundy, Jr., 62 Trustee 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., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
James P. Sommers, 58* Trustee President, NationsBank Trust,
from January 1992 to September
1996; Executive Vice President,
NationsBank Corporation, from
January 1992 to May 1997;
Principal, Bainbridge &
Associates; Partner, Villa LLC;
Chairman, Central Piedmont
Community College Foundation;
Trustee, Central Piedmont
Community College; Board of
Commissioners,
Charlotte/Mecklenberg Hospital
Authority; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
A. Max Walker, 75* President, Trustee and Chairman Financial consultant; Formerly,
4580 Windsor Gate Court of the Board President, A. Max Walker, Inc.;
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income Securities,
Inc., Nations Government Income
Term Trust 2003, Inc., Nations
Government Income Term Trust 2004,
Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund,
Inc., Nations Fund
14
<PAGE>
Portfolios, Inc. and Nations LifeGoal Funds,
Inc.; President and Chairman of
the Board of Trustees, Nations
Institutional Reserves and Nations
Fund Trust.
Charles B. Walker, 58 Trustee 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.
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves and Nations Fund Trust.
Thomas S. Word, Jr., 59* Trustee 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., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves
and Nations Fund Trust.
15
<PAGE>
Richard H. Blank, Jr., 41 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.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.
Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 44 Assistant Secretary Corporate Syndicate
Stephens Inc. Associate, Stephens Inc.
James E. Banks, 41 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, 42 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., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.
Joseph C. Viselli, 33 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
16
<PAGE>
Accountant, Price Waterhouse LLP
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
First Data Investor Services Fund Accounting, First Data
Group Inc. Investor Services Group, Inc.;
One Exchange Place prior to 1997, Investment
Boston, MA 02109 Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder, Stevens and
Clark, Inc.
</TABLE>
- --------------------
* James P. Sommers, 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.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund
Trust, separate registered investment companies that are part of the Nations
Funds Family of funds. Richard H. Blank, Jr., Richard H. Rose, Joseph C.
Viselli, Steven Levy, Michael W. Nolte, Louise P. Newcomb and James E. Banks
also are officers of Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
LifeGoal Funds, Inc. and Nations Fund Trust.
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 Funds 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
17
<PAGE>
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 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.
18
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ESTIMATED ANNUAL
COMPENSATION ACCRUED AS PART BENEFITS UPON TOTAL COMPENSATION
NAME OF PERSON FROM OF FUND RETIREMENT FROM REGISTRANT
POSITION (1) EXPENSES(3) PLAN & FUND COMPLEX
------------ --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Edmund L. Benson, III $4,456.89 $10,339.65 $5,169.82 $80,792.84 50% Def'd
Trustee
James Ermer $7,210.49 $10,339.65 $5,169.82 $43,466.94
Trustee
William H. Grigg $0.00 $10,339.65 $5,169.82 $112,683.25 100% Def'd
Trustee
Thomas F. Keller $178.90 $10,339.65 $5,169.82 $121,325.75 100% Def'd
Trustee
A. Max Walker $10,611.99 $10,339.65 $5,169.82 $71,072.94
Chairman of the Board
Charles B. Walker $8,340.83 $10,339.65 $5,169.82 $47,988.33
Trustee
Thomas S. Word $417.01 $10,339.65 $5,169.82 $115,676.66 100% Def'd
Trustee
James P. Sommers 0 0 0 0
Trustee
Carl E. Mundy, Jr. $7,804.25 $10,339.65 $5,169.82 $48,842.00
--------- ---------- --------- ----------
Trustee
$39,020.35 $82,717.18 $41,848.71 $641,358.59
========== ========== ========== ===========
</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, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Fund Trust and Nations LifeGoal
Funds, Inc., 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 nine
investment companies, including Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations Fund Trust, and Nations LifeGoal Funds, Inc.,
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 five investment companies, including Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Fund Trust and Nations LifeGoal
Funds, Inc. deemed to be part of the Nations Funds complex.
19
<PAGE>
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($110,610.14); and Thomas S. Word ($114,008.63).
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.
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.
20
<PAGE>
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.
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.
21
<PAGE>
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 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
22
<PAGE>
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.
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.
23
<PAGE>
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, 1997, the yield of each Fund was as
follows:
Tax equivalent yield assumes a Federal Tax Rate of 39.6%.
<TABLE>
<CAPTION>
EFFECTIVE TAX EQUIV.
YIELD W/O TAX EQUIV. YIELD W/O
YIELD W/O EFFECTIVE WAIVERS YIELD WAIVERS
YIELD WAIVERS YIELD
<S> <C> <C> <C> <C>
NATIONS CASH RESERVES
Capital Class 5.48% 5.23% 5.63% 5.38% N/A N/A
Liquidity Class 5.33% 4.68% 5.47% 4.82% N/A N/A
Adviser Class 5.23% 4.98% 5.37% 5.12% N/A N/A
Market Class 5.13% 4.78% 5.26% 4.91% N/A N/A
NATIONS TREASURY RESERVES
Capital Class 5.31% 5.05% 5.45% 5.19% N/A N/A
Liquidity Class 5.16% 4.50% 5.29% 4.63% N/A N/A
Adviser Class 5.06% 4.80% 5.19% 4.93% N/A N/A
Market Class 4.96% 4.60% 5.08% 4.72% N/A N/A
NATIONS GOVERNMENT RESERVES
Capital Class 5.38% 5.09% 5.52% 5.23% N/A N/A
Liquidity Class 5.23% 4.54% 5.37% 4.68% N/A N/A
Adviser Class 5.13% 4.84% 5.26% 4.97% N/A N/A
Market Class 5.03% 4.64% 5.16% 4.77% N/A N/A
NATIONS MUNICIPAL RESERVES
Capital Class 4.23% 3.91% 4.32% 4.00% 7.00% N/A
Liquidity Class 4.08% 3.36% 4.16% 3.44% 6.75% N/A
Adviser Class 3.98% 3.66% 4.06% 3.74% 6.59% N/A
Market Class 3.88% 3.46% 3.95% 3.53% 6.42% N/A
</TABLE>
24
<PAGE>
The yield of the Liquidity Class, Adviser Class and Market Class Shares of each
Fund will normally be lower than the yield of the Capital Class Shares because
Liquidity Class, Adviser Class and Market Class Shares are subject to
distribution and/or shareholder servicing expenses not charged to Capital Class
Shares.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by the Distributor or the Transfer Agent. A
purchase order must be received by the Distributor or the Transfer Agent by 3:00
p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves). A purchase order received after such time will not be accepted;
notice thereof will be given to the institution placing the order and any funds
received will be returned promptly to the sending institution. If federal funds
are not available by the close of regular trading on the New York Stock Exchange
(the "Exchange") (currently 4:00 p.m., Eastern time), the order will be
canceled. The purchase price is the net asset value per share next determined
after acceptance of the order by the Distributor or the Transfer Agent.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within five Business Days after receiving a redemption
order if, in the judgment of the NationsBank, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by the Distributor or the
Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves) for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by the Distributor or the Transfer Agent.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of each Fund next
determined after receipt by the Distributor of the redemption order.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
Shareholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of a Fund for any period during which the Exchange, NationsBank, the
Distributor, the Administrator, the Co-Administrator, and/or the Custodian are
not open for business.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
LIQUIDITY CLASS
The Trust has adopted a distribution plan (the "Liquidity Class Distribution
Plan" or the "Distribution Plan") for the Liquidity Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be
25
<PAGE>
approved annually by a majority of the Trustees of the Trust and by a majority
of the Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust and who have no direct or indirect financial interest in the operation
of the plan or in any agreements thereunder (the "Qualified Trustees"). The
Distribution Plan requires that quarterly written reports of amounts spent under
such Distribution Plan and the purposes of such expenditures be furnished to and
reviewed by the Trustees. The Liquidity Class Plan may not be amended to
increase materially the amount which may be spent thereunder without approval by
a majority of the outstanding Liquidity Class Shares of the Trust. All material
amendments of the Distribution Plan will require approval by a majority of the
Trustees and of the Qualified Trustees.
Liquidity Class Shares of each Fund bear the costs of their distribution fees as
provided in a budget approved annually and reviewed quarterly by the Trustees of
the Trust, including those Trustees who are not interested persons and have no
financial interest in the Liquidity Class Plan or any related agreements. The
budget will be in an amount not to exceed .30% of the average daily net assets
of Liquidity Class Shares of each Fund and the Distributor will be reimbursed
only for its actual expenses incurred during a fiscal year. The Distributor will
also receive an additional fee of up to .30% of the average daily net assets of
Liquidity Class Shares of each Fund (.35% with respect to Nations Treasury
Reserves) which the Distributor can use to compensate certain financial
institutions which provide administrative and/or distribution related services
to Liquidity Class shareholders. These services may include establishing and
maintaining customer accounts and records; aggregating and processing purchase
and redemption requests from customers; placing net purchase and redemption
orders with the Distributor or transfer agent; automatically investing customer
account cash balances; providing periodic statements to customers; arranging for
wires; answering customer inquiries concerning their investments; assisting
customers in changing dividend options, account designations, and addresses;
performing sub-accounting functions; processing dividend payments from a Trust
on behalf of customers; and forwarding shareholder communications from the Trust
(such as proxies, shareholder reports, and dividend distribution, and tax
notices) to these customers with respect to investments in the Trust. It is
possible that an institution may offer different classes of Shares to its
customers and thus receive different compensation with respect to different
classes of Shares.
In addition, the Trustees have approved a shareholder servicing plan with
respect to Liquidity Class Shares of the Funds (the "Liquidity Class Servicing
Plan" or the "Servicing Plan"). Pursuant to the Servicing Plan, a Fund may
compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Shareholder Servicing Agreements with the Trust
("Servicing Agents") for certain activities or expenses of the Servicing Agents
in connection with shareholder services that are provided by the Servicing
Agents. The Servicing Plan provides that payments under the Servicing Plan will
be calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Trustees, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Liquidity Class Shares of each Fund.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents under the Servicing Plan may include: (i) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(iii) processing dividend and distribution payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in shares; (v) arranging for bank wires; (vi) responding to customers'
inquiries concerning their investment in shares; (vii) providing sub-accounting
with respect to shares beneficially owned by customers or providing the
information to the Trust necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications from
26
<PAGE>
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 year ended April 30, 1997, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Liquidity Class Shares in the
following amounts:
<TABLE>
<CAPTION>
1997
----
NET NET
12B-1 FEES SHAREHOLDER SERVICING
LIQUIDITY PAID TO PLAN FEES PAID TO
CLASS SHARES STEPHENS NATIONSBANK NET FEES PAID
<S> <C> <C> <C>
Nations Cash Reserves $0 $280,387 $280,387
Nations Treasury Reserves 0 58,712 58,712
Nations Government Reserves 0 9,425 9,425
Nations Municipal Reserves 0 48,994 48,994
</TABLE>
Such distribution expenses for each Fund were attributable to the cost of
marketing the Funds.
MARKET CLASS
The Trust has adopted a distribution plan (the "Market Class Distribution Plan"
or the "Distribution Plan") for the Market Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of the
Trust and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). The Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and
27
<PAGE>
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.
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
28
<PAGE>
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.
For the fiscal year ended April 30, 1997, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Market Class Shares in the
following amounts:
<TABLE>
<CAPTION>
1997
----
NET NET
12B-1 FEES SHAREHOLDER SERVICING
MARKET PAID TO PLAN FEES PAID TO
CLASS SHARES STEPHENS NATIONSBANK NET FEES PAID
<S> <C> <C> <C>
Nations Cash Reserves $169,329 $419,919 $589,248
Nations Treasury Reserves 87,299 216,742 304,041
Nations Government Reserves 180,287 447,248 627,535
Nations Municipal Reserves 89,596 222,270 311,866
</TABLE>
ADVISER CLASS
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Shareholder
Servicing Plan for the Adviser Class Shares of each Fund (the "Adviser Class
Servicing Plan"). Under the Adviser Class Servicing Plan, the Trust may enter
into Shareholder Servicing Agreements with broker/dealers, banks and other
financial institutions ("Servicing Agents") pursuant to which the Servicing
Agents will provide shareholder support services to their customers who
beneficially own Adviser Class Shares in the Funds. The Adviser Class Servicing
Plan permits the Trust to pay Servicing Agents a fee not exceeding 0.25% of the
average daily net asset value of the Adviser Class Shares beneficially owned by
the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the Adviser
Class Servicing Plan may include: (i) aggregating and processing purchase and
redemption requests for such Adviser Class
29
<PAGE>
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 year ended April 30, 1997, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Adviser Class Shares in the
following amounts:
<TABLE>
<CAPTION>
1997
----
NET NET
12B-1 FEES SHAREHOLDER SERVICING
ADVISER PAID TO PLAN FEES PAID TO
CLASS SHARES STEPHENS NATIONSBANK NET FEES PAID
<S> <C> <C> <C>
Nations Cash Reserves $0 $802,626 $802,626
Nations Treasury Reserves 0 360,803 360,803
Nations Government Reserves 0 80,948 80,948
Nations Municipal Reserves 0 18,582 18,582
</TABLE>
The Adviser Class Servicing Plan will continue in effect only so long as such
continuance is approved at least annually by (i) a majority of the Board of
Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a vote cast
in person at a meeting called for the purpose of voting on the Adviser Class
Servicing Plan. The Adviser Class Servicing Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Adviser Class Shares of such Fund. All material
amendments to the Adviser Class Servicing Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Adviser Class
Servicing Plan requires that quarterly written reports of the amounts spent
under the Adviser Class Servicing Plan and the purposes of such expenditures be
furnished to, and reviewed by, the Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Funds will be determined as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each day the Exchange is open for business.
30
<PAGE>
Net asset value per share of each Fund is calculated by adding the value of its
securities and other assets, subtracting its liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method pursuant to Rule 2a-7 under the 1940 Act, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by this
method, is higher or lower than the price each Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of each
Fund may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by each Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in each Fund would be able to obtain
a somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in each Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The Funds use of amortized cost and the maintenance of the Funds net asset value
at $1.00 are permitted by regulations promulgated by the SEC under the 1940 Act,
provided that certain conditions are met. The Trust will maintain a
dollar-weighted average maturity in the Funds of 90 days or less, will not
purchase any instrument having a remaining maturity of more than 397 days, and
will limit its investments to those U.S. dollar-denominated instruments which
are permitted investments under SEC regulations. The regulations also require
the Trustees to establish procedures which are reasonably designed to stabilize
the net asset value per share at $1.00 for the Funds. Such procedures include
the determination of the extent of deviation, if any, of the Funds current net
asset value per share calculated using available market quotations from the
Funds amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to Shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. Such actions may include
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations. In addition, if the Funds incur a significant loss
or liability, the Trustees have the authority to reduce pro rata the number of
shares of the Funds in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends while each other Fund must
annually distribute at least 90% of its investment company taxable income.
TAXES
The following information supplements and should be read in conjunction with
Prospectus section entitled "Tax Information." The Prospectus of the Funds
describes generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning income taxes.
IN GENERAL
The Trust intends to qualify each Fund as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") as
long as such qualification is in the best
31
<PAGE>
interest of the Fund's shareholders. Each Fund will be treated as a separate
entity for tax purposes and thus the provisions of the Code applicable to
regulated investment companies will generally be applied to each Fund, rather
than to the Trust as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each Fund will not be taxed on net investment
income and capital gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) each Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 7, 1997.
The Funds must also distribute or be deemed to distribute to their shareholders
at least 90% of their net investment income earned in each taxable year. In
general, these distributions must actually or be deemed to be made in the
taxable year. However, in certain circumstances, such distributions may be made
in the 12 months following the taxable year. The Funds intend to pay out
substantially all of their net investment income and net realized capital gains
(if any) for each year.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than to the
extent of its tax-exempt interest income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. Each Fund
intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio securities
by a Fund will generally be capital gains and losses. Such gains and losses will
ordinarily be long-term capital gains and losses if the securities have been
held by the Fund for more than 12 months at the time of disposition of the
securities (however, see "Capital Gain Distributions" below).
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which
accrued,
32
<PAGE>
but was not previously recognized pursuant to an available election, during the
term the Fund held the debt obligation.
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by a Fund as capital gain distributions will
be taxed to shareholders as long-term term capital gains (to the extent such
dividends do not exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to the shareholders not later than 60 days after the
close of the Fund's taxable year.
With respect to shareholders who are individuals, trusts or estates, the
Taxpayer Relief Act of 1997 (the "Act") reduces the maximum tax rate on net
capital gains derived from securities held for more than 18 months to 20% and
provides a maximum tax rate on net capital gains derived from securities held
for more than one year and for not more than 18 months ("mid-term gains") of
28%. A maximum 18% rate will ultimately be available to individuals, trusts and
estates for net gain on the disposition of certain securities held more than 5
years upon their disposition. The Treasury Department is authorized to issue
regulations for application of the reduced rates to pass-through entities,
including regulated investment companies. Shareholders who are individuals,
trusts or estates may therefore qualify for the reduced rate of tax on capital
gain distributions paid by a Fund to the extent such distributions are
attributable to the Fund's dispositions after May 7, 1997.
Net gain recognized on securities held for one year or less in excess of net
long-term capital loss continues to be short-term capital gain subject to tax at
ordinary income rates, and the Act generally does not affect the taxation of
capital gains to corporations.
OTHER DISTRIBUTIONS
Although dividends of net investment income will be declared daily based on each
Fund's daily earnings, for Federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For Federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year a Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and profits
will be deemed to have constituted a dividend. It is expected that each Fund's
net income, on an annual basis, will equal the dividends declared during the
year.
DISPOSITION OF FUND SHARES
A disposition of Fund Shares pursuant to redemption (including a redemption
in-kind) or exchanges will ordinarily result in a taxable capital gain or loss,
depending on the amount received for the Shares (or are deemed to receive in the
case of an exchange) and the cost of your Shares.
If a shareholder exchanges or otherwise disposes of Fund Shares within 90 days
of having acquired such shares and if, as a result of having acquired those
Shares, the shareholder subsequently pays a reduced sales charge or load on a
new purchase of shares of the Fund or a different regulated investment company,
the sales charge or load previously incurred acquiring the Fund's Shares shall
not be taken into account (to the extent such previous sales charge or load does
not exceed the reduction in sales charge or load on the new purchase) for the
purpose of determining the amount of gain or loss on the disposition, but will
33
<PAGE>
be treated as having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of Shares of the Fund will
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
Shares are disposed of.
If a shareholder holds Fund Shares for six months or less, any loss on the sale
or exchange of those Shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the Shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. In addition, if a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund Share and such Fund Share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund Share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. The foregoing
recharacterization and disallowance rules do not apply to losses realized under
a periodic redemption plan.
FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable to
ordinary income is 39.6% (marginal tax rates may be higher for some individuals
to reduce or eliminate the benefit of exemptions and deductions); the maximum
individual marginal tax rate applicable to net capital gains is 28% (however,
see "Capital Gain Distributions" above); and the maximum corporate tax rate
applicable to ordinary income and net capital gains is 35% (marginal tax rates
may be higher for some corporations to reduce or eliminate the benefit of lower
marginal income tax rates). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by the Fund to a
nonresident alien individual, foreign trust (I.E., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. fiduciaries have authority to control substantial decisions of that
trust), foreign estate (I.E., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to Federal withholding tax (at a rate of 30% or,
if an income tax treaty applies, at the lower treaty rate, if any). Such tax
withheld is generally not refundable. Withholding will not apply if a dividend
paid by the Fund to a foreign shareholder is "effectively connected" with a U.S.
trade or business (or, if an income tax treaty applies, is attributable to a
U.S. permanent establishment of the foreign shareholder), in which case the
reporting and withholding requirements applicable to U.S. persons will apply.
Distributions of net long-term capital gains are generally not subject to tax
withholding applicable to foreign shareholders.
BACKUP WITHHOLDING
The Trust may be required to withhold, subject to certain exemptions, at a rate
of 31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless a shareholder
certifies that the Taxpayer Identification Number ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is
34
<PAGE>
incorrect or the shareholder is subject to backup withholding. Such tax withheld
does not constitute any additional tax imposed on the shareholder, and may be
claimed as a tax payment on the shareholder's Federal income tax return. An
investor must provide a valid TIN upon opening or reopening an account. Failure
to furnish a valid TIN to the Trust could subject the investor to penalties
imposed by the IRS.
ADDITIONAL CONSIDERATIONS FOR NATIONS MUNICIPAL RESERVES
If at least 50% of the value of a regulated investment company's total assets at
the close of each quarter of its taxable years consists of obligations the
interest on which is exempt from Federal income tax, it will qualify under the
Code to pay "exempt-interest dividends." Nations Municipal Reserves intends to
so qualify and is designed to provide investors with a high level of income
exempt from Federal income tax.
The portion of total dividends paid by Nations Municipal Reserves with respect
to any taxable year that constitutes exempt-interest dividends will be the same
for all shareholders receiving dividends during such year. Distributions of
capital gains or from net investment income not attributable to interest on the
Fund's tax-exempt obligations will not constitute exempt-interest dividends and
will be taxable to its shareholders. The exemption of interest income derived
from investments in tax-exempt obligations for Federal income tax purposes may
not result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, Nations Municipal
Reserves will notify its shareholders of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. Interest on
indebtedness incurred to purchase or carry shares of Nations Municipal Reserves
will not be deductible to the extent that the Fund's distributions are exempt
from federal income tax.
In addition, the Federal alternative minimum tax ("AMT") rules ensure that at
least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions and
exemptions have been designated "tax preference items" which must be added back
to taxable income for purposes of calculating AMT. Among the tax preference
items is tax-exempt interest from "private activity bonds" issued after August
7, 1986. To the extent that Nations Municipal Reserves invests in private
activity bonds, its shareholders who pay AMT will be required to report that
portion of Fund dividends attributable to income from the bonds as a tax
preference item in determining their AMT. Shareholders will be notified of the
tax status of distributions made by Nations Municipal Reserves. Persons who may
be "substantial users" (or "related persons" of substantial users) of facilities
financed by private activity bonds should consult their tax advisors before
purchasing shares in Nations Municipal Reserves. Furthermore, shareholders will
not be permitted to deduct any of their share of Nations Municipal Reserves'
expenses in computing their AMT. With respect to a corporate shareholder of
Nations Municipal Reserves, exempt-interest dividends paid by the Fund is
included in the corporate shareholder's "adjusted current earnings" as part of
its AMT calculation, and may also affect its Federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT at
a maximum rate of 28% and corporations at a maximum rate of 20%. Shareholders
with questions or concerns about AMT should consult their tax advisors.
Shares of Nations Municipal Reserves would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of
35
<PAGE>
dividends from the Fund. Such dividends may ultimately be taxable to
the beneficiaries when distributed to them.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds may
involve sophisticated tax rules that may result in income or gain recognition by
the Fund without corresponding current cash receipts. Although the Funds will
seek to avoid significant noncash income, such noncash income could be
recognized by the Funds, in which case the Funds may distribute cash derived
from other sources in order to meet the minimum distribution requirements
described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal tax considerations generally
affecting investments in the Funds. Each investor is urged to consult his or her
tax advisor regarding specific questions as to federal, state, local or foreign
taxes.
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
36
<PAGE>
procedures for evaluating the reasonableness of commissions paid to such
affiliated persons and will review these procedures periodically.
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.
During the fiscal year ended April 30 1997, the Trust paid $0 in aggregate
brokerage commissions. None of the Trust's Funds held any securities of
companies among the Trust's "regular brokers or dealers" or parents of its
"regular brokers or dealers".
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.
The Bank of New York, 90 Washington Street, New York, New York 10286 serves as
sub-custodian for the portfolio securities and cash of all the Funds.
For the fiscal year ended April 30, 1997, the Trust paid $212,101 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.
NationsBank of Texas, N.A. serves as sub-transfer agent for the Funds. For the
fiscal year ended April 30, 1997, the Trust paid $22,656 in aggregate fees to
NationsBank of Texas, N.A. for its services as sub-transfer agent for the
shares of each Fund.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds and different classes of each Fund. Each Fund currently
offers Capital Class Shares, Liquidity Class Shares, Adviser Class Shares and
Market Class Shares. Except for differences between classes of a Fund pertaining
to distribution arrangements, each share of a Fund represents an equal
proportionate interest in
37
<PAGE>
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.
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 13, 1997.
PERCENTAGE OF SHARES
NAME AND ADDRESS HELD OF RECORD ONLY
NATIONS CASH RESERVES
Adviser Class Shares
NationsBank of Texas, N.A. 20.03%
Attn: David Thayer
38
<PAGE>
1401 Elm Street, 11th Floor
Dallas, TX 75202
Capital Class Shares
The Bank of New York 21.75%
As Agent for Its Securities
Lending Customers
101 Barclay Street
New York, NY 10286
Chase Manhattan Bank as Custodian 20.01%
State Treasurer of Florida
Attn: Mike Latargia
Three Chase Metro Tech. Center
6th Floor
Brooklyn, NY 11245
NationsBank of Texas, N.A. 17.72%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Mallinckrodt Inc. 7.33%
Attn: Gail Tetzloff
675 McDonnell Blvd.
Hazelwood MO 63042
Liquidity Class Shares
NationsBank of Texas, N.A. - Agent FBO 23.14%
Global Finance Sweep Customers
Attn: Steven Edwards
1201 Main Street
TX1-609-21-04
Dallas, TX 75202
Florida Panthers Holdings Inc. 12.02%
c/o Huizenga Holdings
101 N.E. 3rd Ave.
Ft. Lauderdale, FL 33301-1176
Digital Television Services LLC 5.90%
880 Holcomb Bridge Rd.
Suite C200
Roswell, GA 30076
Signature Resorts Inc. 5.65%
2934 Woodside Road
39
<PAGE>
Woodside, CA 94062
COMP USA Inc. 5.14%
Attn: Brad Williams
14951 N. Dallas Pkwy
Dallas, TX 75240
Charles Eugene Campbell 5.10%
Attn: Louis J. Meyer Jr.
Campbell Ready Mix
P.O. Box 1147
Cleveland, TX 77328
Market Class Shares
NationsBank SWP Disbursement NC 92.59%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement TX 7.36%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NATIONS TREASURY RESERVES
Adviser Class Shares
Hare & Co., Bank of New York 21.81%
Attn: STIF/Master Note
One Wall Street, 2nd Floor
New York, NY 10286
Primus Telecommunications 14.71%
International Inc.
624 South Grand Avenue
Suite 2810
Los Angeles, CA 90017-3335
Wyatt Company Inc. 7.62%
6707 Democracy Blvd.
Suite 800
Bethesda, MD 20817-1129
Capital Class Shares
NationsBank of Texas, N.A. 87.79%
Attn: David Thayer
1401 Elm Street, 11th Floor
40
<PAGE>
Dallas, TX 75202
AVX Corporation 5.26%
Attn: Bill Thiele
Box 24
801 17th Ave. South
Myrtle Beach, SC 29577
Liquidity Class Shares
NationsBank of Texas, N.A. - Agent FBO 33.06%
Global Finance Sweep Customers
Attn: Steven Edwards
1201 Main Street
TX1-609-21-04
Dallas, TX 75202
TwinStar Semiconductor Inc. 22.29%
P.O. Box 834104
Richardson, TX 75083
EnergyOne LLC 12.15%
Attn: Gary Gates
911 Main - Suite 3000
Kansas City. MO 64105
ECT Securities Corp. 9.54%
C/O Enron Corp.
Attn: Donna Lowry EB 2881
P.O. Box 1188
Houston, TX 77251-1188
Market Class Shares
NationsBank SWP Disbursement NC 94.12%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NationsBank SWP Disbursement TX 5.88%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
41
<PAGE>
NATIONS GOVERNMENT RESERVES
Adviser Class Shares
Tuesday Morning Inc. 22.54%
Attn: Alan Openhiemer
14621 Inwood Road
Dallas, TX 75224
Martha Stewart Living 17.48%
Omni Media LLC
Attn: Joel Safir
20 W. 43rd Street, 25th Floor
New York, NY 10036
North Kansas City Hospital 6.79%
Master Account
Attn: Mike Wright
2800 Clay Edwards Drive
No. Kansas City, MO 64116
Longhorn Production Company 5.51%
4600 Greenville Ave #300
Dallas, TX 75206
NationsBank of Texas, N.A. 5.21%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Capital Class Shares
NationsBank of Texas, N.A. 39.17%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Dallas ISD General Fund 19.12%
Attn: Dick Williams
Room 218C
3700 Ross Avenue
Dallas, TX 75204
Hillwood/1358 Ltd. 14.27%
GF 97SO37781A SJIE B/T Texas
ESCRW CO AEA
Attn: Sara Tillman
300 Crescent Court Suite 100
Dallas, TX 75201
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<PAGE>
Dallas ISD I&S Fund 9.89%
3700 Ross Ave. Room 218C
Dallas, TX 75204
Theragenics Corporation 9.57%
5325 Oakbrook Parkway
Norcross, GA 30093
The Nemours Foundation 6.91%
Attn: Ron Malloy
P.O. Box 1380
Jacksonville, FL 32201
Liquidity Class Shares
Texas New Mexico Power Company 49.14%
Attn: Cash Manager
P.O. Box 2943
Fort Worth, TX 76113
TwinStar Semiconductor Inc. 27.02%
P.O. Box 834104
Richardson, TX 75083
H. Lee Moffit Cancer Center & 11.04%
Research Institute
Attn: Yvette Lyons
12902 Magnolia Drive
Tampa, FL 33612-9497
TNP Enterprises Inc. 5.81%
4101 International Plaza
Fort Worth, TX 76109
Market Class Shares
NationsBank SWP Disbursement NC 100.00%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
NATIONS MUNICIPAL RESERVES
Adviser Class Shares
HJ Freede Inc. 13.67%
316 NW 39th Street
Oklahoma City, OK 73118
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<PAGE>
Software Plus
AKA Heartland Source for Software 12.38%
Attn: Larry Malashock, President
10880 Baur Road
St. Louis, MO 63132
Dash Multi-Corp 11.47%
Attn: Marvin Wool
2500 Adie Road
Maryland Heights, MO 63043-3525
Heritage Bag Company 6.85%
1648 Diplomat Drive
Carrollton, TX 75006-6847
Rehabcare Group 6.62%
Attn: Brenda Mason
7733 Forsyth Blvd. Suite 1700
Clayton, MO 63105
BH Christopher 5.77%
6202 Emmons Lane
Tampa, FL 33647
PL Mathis and 5.52%
Carmen L Mathis JTTEN
1934 Marydale Drive
Dallas, TX 75208-3033
Capital Class Shares
NationsBank of Texas, N.A. 100.00%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Liquidity Class Shares
Vintec Company 32.84%
1501 Malloy Lane
P.O. Box 1258
Murfreesboro, TN 37133
Physician Sales & Services 13.83%
Attn: Kevin P. English
7800 Belfort Pkwy
Suite 250
Jacksonville, FL 32256
44
<PAGE>
NQGR&G Options Inc. 10.85%
Qualified Intermediary For
AGM Nevada Inc.
c/o Robert M. Ercole Esq.
One South St. - Suite 2700
Baltimore, MD 21202
Sykes Enterprises Inc. 10.39%
Attn: Scott Bendert
100 N. Tampa Street
Auite 3900
Tampa, FL 33602
Comp USA, Inc. 9.00%
Attn: Brad Williams
14951 N. Dallas Parkway
Dallas, TX 75240
Market Class Shares
NationsBank SWP Disbursement NC 98.14%
901 W. Trade Street
LOC Code NC1-003-04-38
Charlotte, NC 28255
EXPERTS AND FINANCIAL INFORMATION
The Board of Trustees has selected Price Waterhouse LLP, with offices at 160
Federal Street, Boston, MA 02110, to serve as independent accountant to Nations
Institutional Reserves. Certain financial information which appears in the
Prospectuses and the financial statements has been audited by the accountants.
The Annual Report for the fiscal year ended April 30, 1997, is hereby
incorporated by reference in this SAI. The Annual Report will be sent free of
charge with this SAI to any shareholder who requests this SAI.
45
<PAGE>
NATIONS INSTITUTIONAL RESERVES
FILE NOS. 33-33144; 811-6030
PART C.
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements, including:
Portfolio of Investments for April 30, 1997 Statements of
Assets and Liabilities for April 30, 1997 Statements of
Operations for the year ended April 30, 1997
Statements of Changes in Net Assets for the years ended
April 30, 1997 and April 30, 1996 Financial Highlights
Notes to Financial Statements
Report of Independent Accountants, dated June 18, 1997
Included in Part C:
Consent of Independent Accountants
(b) Additional Exhibits
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(1) Declaration of Trust Incorporated by Reference to Form N-1A filed January 22, 1990
(2) By-Laws Incorporated by Reference to Form N-1A filed January 22, 1990
(3) Not Applicable
(4) Not Applicable
(5)(a) Investment Advisory Agreement with Nationsbanc Advisors, Inc. Incorporated by
Reference to Post-Effective Amendment No. 17
(5)(b) Sub-Advisory Agreement with TradeStreet Investment Associates, Inc. Incorporated by
Reference to Post-Effective Amendment No. 17
(6) Distribution Agreement with Stephens, Inc. Incorporated by Reference to Post-Effective
Amendment No. 10
(7) Not Applicable
<PAGE>
(8) Mutual Fund Custody and Sub-Custody Agreement with NationsBank of Texas, N.A. as
Custodian and The Bank of New York as Sub-Custodian filed herewith
(9)(a) Administration Agreement with Stephens Inc. Incorporated by Reference to
Post-Effective Amendment No. 10
(9)(b) Co-Administration Agreement with The Boston Company Advisors, Inc. Incorporated by
Reference to Post-Effective Amendment No. 10
(9)(c) Transfer Agency Agreement with The Shareholder Services Group, Inc. to be filed by
amendment
(10) Opinion and Consent of Counsel is filed herewith
(11) Consent of Independent Accountants is filed herewith
(12) Not Applicable (13)Not Applicable (14)Not Applicable
(15)(a) Distribution Plan for Liquidity Class Shares Incorporated by Reference to
Pre-Effective Amendment No. 1
(15)(b) Shareholder Servicing Plan for Adviser Class Shares Incorporated by Reference to
Post-Effective Amendment No. 10
(15)(c) Form of Shareholder Servicing Agreement for Adviser Class Shares Incorporated by
Reference to Post-Effective Amendment No. 10
(15)(d) Shareholder Servicing Plan for Market Class Shares Incorporated by Reference to
Post-Effective Amendment No. 12
(15)(e) Form of Shareholder Servicing Agreement for Market Class Shares Incorporated by
Reference to Post-Effective Amendment No. 10
(15)(f) Distribution Plan for Market Class Shares Incorporated by Reference to Post-Effective
Amendment No. 12
(15)(g) Form of Brokerage Agreement Incorporated by Reference to Post-Effective Amendment No.
11
(15)(h) Shareholder Servicing Plan for Liquidity Class Shares Incorporated by Reference to
Post-Effective Amendment No. 14
(16) Performance Quotation Computation Incorporated by Reference to Post-Effective Amendment No. 6
(17) Not Applicable
(18) Plan entered into by Registrant pursuant to Rule 18f-3 under the Investment Company
Act of 1940
</TABLE>
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
2
<PAGE>
Item 26. NUMBER OF HOLDERS OF SECURITIES:
As of August 25, 1997
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
Shares of beneficial interest, without par value --
Nations Cash Reserves -- Capital Class 77
Nations Cash Reserves -- Liquidity Class 112
Nations Cash Reserves -- Adviser Class 362
Nations Cash Reserves -- Market Class 4
Nations Treasury Reserves -- Capital Class 19
Nations Treasury Reserves -- Liquidity Class 25
Nations Treasury Reserves -- Adviser Class 235
Nations Treasury Reserves -- Market Class 3
Nations Government Reserves -- Capital Class 7
Nations Government Reserves -- Liquidity Class 15
Nations Government Reserves -- Adviser Class 61
Nations Government Reserves -- Market Class 2
Nations Municipal Reserves -- Capital Class 1
Nations Municipal Reserves -- Liquidity Class 25
Nations Municipal Reserves -- Adviser Class 46
Nations Municipal Reserves -- Market Class 3
Item 27. INDEMNIFICATION
Article VIII of the Agreement of Declaration of Trust filed as Exhibit
1 to the Registration Statement is incorporated by reference. Indemnification of
Registrant's administrators, principal underwriter, custodian and transfer agent
is provided for, respectively, in the:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with The Boston Company Advisors,
Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Mutual Fund Custody and Sub-Custody Agreement with NationsBank
of Texas, N.A. as Custodian and The Bank of New York as
Sub-Custodian; and
5. Transfer Agency Agreement with First Data Investor Services
Group, Inc.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such
3
<PAGE>
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, officers or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
(a) To the knowledge of Registrant, none of the directors or officers
of NationsBanc Advisors, Inc. ("NBAI"), the adviser to the Registrant's
portfolios, or TradeStreet Investment Associates, Inc. ("TradeStreet") the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriters:
(a) Stephens Inc., distributor for the Registrant, does not
presently act as investment adviser for any other registered investment
companies, but does act as principal underwriter for Nations Fund Trust, Nations
Fund, Inc., Nations Fund Portfolios, Inc., Overland Express Funds, Inc.,
Stagecoach Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the
exclusive placement agent for Master Investment Trust, Managed Series Investment
Trust, Life & Annuity Trust and Master Investment Portfolio, all of which are
registered open-end management investment companies, and has acted as principal
underwriter for the Liberty Term Trust, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term Trust
4
<PAGE>
2004, Inc. and the Managed Balanced Target Maturity Fund, Inc. closed-end
management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records:
(1) NationsBanc Advisors, Inc., One NationsBank Plaza, Charlotte,
North Carolina 28255 (records relating to its function as Investment Adviser).
(2) TradeStreet Investment Associates, Inc., One NationsBank
Plaza, Charlotte, North Carolina 28255 (records relating to its function as
Sub-Investment Adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator).
(5) First Data Investor Services Group, Inc. (formerly, The
Shareholder Services Group), One Exchange Place, 53 State Street, Boston,
Massachusetts 02109 (records relating to its functions as Co-Administrator).
(6) First Data Investor Services Group, Inc.(formerly, The
Shareholder Services Group), One Exchange Place, Boston, Massachusetts 02109
(records relating to its function as Transfer Agent).
(7) NationsBank of Texas, N.A., 1401 Elm Street, Dallas, Texas
75202 (records relating to its function as Custodian).
(8) The Bank of New York, 90 Washington Street, New York, New York
10286 (records relating to its function as Sub-Custodian).
Item 31. Management Services
None
Item 32. Undertakings
5
<PAGE>
(a) To call a meeting of Shareholders for the purpose of voting upon the
question of the removal of a Trustee(s) when requested in writing to do so by
the holders of at least 10% of Registrant's outstanding shares and in connection
with each meeting to comply with the provision of Section 16(c) of the
Investment Company Act of 1940 relating to Shareholder communications.
(b) To furnish each prospective person to whom a prospectus will be
delivered with a copy of the Registrant's latest annual report to shareholders,
when such annual report is issued containing information called for by Item 5A
of Form N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Capitol
Mutual Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out this Registration Statement are not binding upon any of the
Trustees, officers, or Shareholders individually but are binding only upon the
assets and property of the Trust.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 27th day of August, 1997.
THE CAPITOL MUTUAL FUNDS
By: *
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
* President and Chairman August 27, 1997
-----------------------------------
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer August 27, 1997
- -----------------------------------
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Trustee August 27, 1997
- -----------------------------------
(Edmund L. Benson, III)
* Trustee August 27, 1997
- -----------------------------------
(James Ermer)
* Trustee August 27, 1997
- -----------------------------------
(William H. Grigg)
* Trustee August 27, 1997
- -----------------------------------
(Thomas F. Keller)
* Trustee August 27, 1997
- ----------------------------------
(Carl E. Mundy, Jr.)
* Trustee August 27, 1997
- -----------------------------------
(Charles B. Walker)
* Trustee August 27, 1997
- -----------------------------------
(Thomas S. Word)
- ----------------------------------- Trustee
(James P. Sommers)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
EX-27.011 Financial Data Schedules -- Nations Cash Reserves -- Adviser Class Shares
EX-27.012 Financial Data Schedules -- Nations Cash Reserves -- Capital Class Shares
EX-27.013 Financial Data Schedules -- Nations Cash Reserves -- Liquidity Class Shares
EX-27.014 Financial Data Schedules -- Nations Cash Reserves -- Market Class Shares
EX-27.021 Financial Data Schedules -- Nations Treasury Reserves -- Adviser Class Shares
EX-27.022 Financial Data Schedules -- Nations Treasury Reserves -- Capital Class Shares
EX-27.023 Financial Data Schedules -- Nations Treasury Reserves -- Liquidity Class Shares
EX-27.024 Financial Data Schedules -- Nations Treasury Reserves -- Market Class Shares
EX-27.031 Financial Data Schedules -- Nations Government Reserves -- Adviser Class Shares
EX-27.032 Financial Data Schedules -- Nations Government Reserves -- Capital Class Shares
EX-27.033 Financial Data Schedules -- Nations Government Reserves -- Liquidity Class
Shares
EX-27.034 Financial Data Schedules -- Nations Government Reserves -- Market Class Shares
EX-27.041 Financial Data Schedules - Nations Municipal Reserves -- Adviser Class Shares
EX-27.042 Financial Data Schedules -- Nations Municipal Reserves -- Capital Class Shares
EX-27.043 Financial Data Schedules - Nations Municipal Reserves -- Liquidity Class Shares
EX-27.044 Financial Data Schedules -- Nations Municipal Reserves - Market Class Shares
EX-99.B8 Cust Agmt
EX-99.B10 Opin Couns
EX-99.B11 Oth Consnt
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>043
<NAME>Nations Cash Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 2,678,496,826
<INVESTMENTS-AT-VALUE> 2,678,496,826
<RECEIVABLES> 11,502,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 609
<TOTAL-ASSETS> 2,690,000,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,365,897
<TOTAL-LIABILITIES> 5,365,897
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 247,550,891
<SHARES-COMMON-STOCK> 247,550,891
<SHARES-COMMON-PRIOR> 397,810,536
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,296)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 247,550,587
<DIVIDEND-INCOME> 3,914,065
<INTEREST-INCOME> 90,975,530
<OTHER-INCOME> 0
<EXPENSES-NET> 5,108,966
<NET-INVESTMENT-INCOME> 89,780,629
<REALIZED-GAINS-CURRENT> 1,459
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 89,782,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,293,321)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,638,783,813
<NUMBER-OF-SHARES-REDEEMED> (1,792,509,122)
<SHARES-REINVESTED> 3,465,664
<NET-CHANGE-IN-ASSETS> 1,643,735,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,155,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,418,769
<AVERAGE-NET-ASSETS> 322,153,402
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>041
<NAME>Nations Cash Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 2,678,496,826
<INVESTMENTS-AT-VALUE> 2,678,496,826
<RECEIVABLES> 11,502,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 609
<TOTAL-ASSETS> 2,690,000,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,365,897
<TOTAL-LIABILITIES> 5,365,897
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,684,234,691
<SHARES-COMMON-STOCK> 1,684,234,691
<SHARES-COMMON-PRIOR> 607,645,681
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,296)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,684,232,624
<DIVIDEND-INCOME> 3,914,065
<INTEREST-INCOME> 90,975,530
<OTHER-INCOME> 0
<EXPENSES-NET> 5,108,966
<NET-INVESTMENT-INCOME> 89,780,629
<REALIZED-GAINS-CURRENT> 1,459
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 89,782,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (55,425,041)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,400,298,782
<NUMBER-OF-SHARES-REDEEMED> (7,348,719,105)
<SHARES-REINVESTED> 25,009,333
<NET-CHANGE-IN-ASSETS> 1,643,735,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,155,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,418,769
<AVERAGE-NET-ASSETS> 1,041,157,601
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>042
<NAME>Nations Cash Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 2,678,496,826
<INVESTMENTS-AT-VALUE> 2,678,496,826
<RECEIVABLES> 11,502,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 609
<TOTAL-ASSETS> 2,690,000,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,365,897
<TOTAL-LIABILITIES> 5,365,897
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 419,851,922
<SHARES-COMMON-STOCK> 419,851,922
<SHARES-COMMON-PRIOR> 35,447,302
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,296)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 419,851,406
<DIVIDEND-INCOME> 3,914,065
<INTEREST-INCOME> 90,975,530
<OTHER-INCOME> 0
<EXPENSES-NET> 5,108,966
<NET-INVESTMENT-INCOME> 89,780,629
<REALIZED-GAINS-CURRENT> 1,459
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 89,782,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,676,471)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,463,041,753
<NUMBER-OF-SHARES-REDEEMED> (4,084,515,073)
<SHARES-REINVESTED> 5,877,940
<NET-CHANGE-IN-ASSETS> 1,643,735,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,155,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,418,769
<AVERAGE-NET-ASSETS> 186,893,501
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>044
<NAME>Nations Cash Reserves Market
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 2,678,496,826
<INVESTMENTS-AT-VALUE> 2,678,496,826
<RECEIVABLES> 11,502,680
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 609
<TOTAL-ASSETS> 2,690,000,115
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,365,897
<TOTAL-LIABILITIES> 5,365,897
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 333,000,010
<SHARES-COMMON-STOCK> 333,000,010
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,296)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 332,999,601
<DIVIDEND-INCOME> 3,914,065
<INTEREST-INCOME> 90,975,530
<OTHER-INCOME> 0
<EXPENSES-NET> 5,108,966
<NET-INVESTMENT-INCOME> 89,780,629
<REALIZED-GAINS-CURRENT> 1,459
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 89,782,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,385,796)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 794,300,010
<NUMBER-OF-SHARES-REDEEMED> (461,300,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,643,735,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,155,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,418,769
<AVERAGE-NET-ASSETS> 169,329,468
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>053
<NAME>Nations Treasury Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 929,366,073
<INVESTMENTS-AT-VALUE> 929,366,073
<RECEIVABLES> 755,567
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,485
<TOTAL-ASSETS> 930,141,125
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,939,297
<TOTAL-LIABILITIES> 101,939,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 154,260,856
<SHARES-COMMON-STOCK> 154,260,925
<SHARES-COMMON-PRIOR> 175,703,647
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,840)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 154,255,582
<DIVIDEND-INCOME> 1,182,057
<INTEREST-INCOME> 31,485,300
<OTHER-INCOME> 0
<EXPENSES-NET> 1,933,787
<NET-INVESTMENT-INCOME> 30,733,570
<REALIZED-GAINS-CURRENT> 6,649
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 30,740,219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,165,652)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 735,220,753
<NUMBER-OF-SHARES-REDEEMED> (758,512,266)
<SHARES-REINVESTED> 1,848,791
<NET-CHANGE-IN-ASSETS> 336,364,606
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,814,290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,503,999
<AVERAGE-NET-ASSETS> 144,754,732
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>051
<NAME>Nations Treasury Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 929,366,073
<INVESTMENTS-AT-VALUE> 929,366,073
<RECEIVABLES> 755,567
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,485
<TOTAL-ASSETS> 930,141,125
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,939,297
<TOTAL-LIABILITIES> 101,939,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 468,990,834
<SHARES-COMMON-STOCK> 468,991,605
<SHARES-COMMON-PRIOR> 304,363,940
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,840)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 468,975,360
<DIVIDEND-INCOME> 1,182,057
<INTEREST-INCOME> 31,485,300
<OTHER-INCOME> 0
<EXPENSES-NET> 1,933,787
<NET-INVESTMENT-INCOME> 30,733,570
<REALIZED-GAINS-CURRENT> 6,649
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 30,740,219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,377,380)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,673,872,701
<NUMBER-OF-SHARES-REDEEMED> (1,510,038,699)
<SHARES-REINVESTED> 793,663
<NET-CHANGE-IN-ASSETS> 336,364,606
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,814,290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,503,999
<AVERAGE-NET-ASSETS> 334,093,639
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>052
<NAME>Nations Treasury Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 929,366,073
<INVESTMENTS-AT-VALUE> 929,366,073
<RECEIVABLES> 755,567
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,485
<TOTAL-ASSETS> 930,141,125
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,939,297
<TOTAL-LIABILITIES> 101,939,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,577,968
<SHARES-COMMON-STOCK> 81,577,976
<SHARES-COMMON-PRIOR> 11,804,972
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,840)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 81,575,151
<DIVIDEND-INCOME> 1,182,057
<INTEREST-INCOME> 31,485,300
<OTHER-INCOME> 0
<EXPENSES-NET> 1,933,787
<NET-INVESTMENT-INCOME> 30,733,570
<REALIZED-GAINS-CURRENT> 6,649
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 30,740,219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,979,702)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 553,984,269
<NUMBER-OF-SHARES-REDEEMED> (485,733,563)
<SHARES-REINVESTED> 1,522,298
<NET-CHANGE-IN-ASSETS> 336,364,606
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,814,290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,503,999
<AVERAGE-NET-ASSETS> 39,094,290
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>054
<NAME>Nations Treasury Reserves Market
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 929,366,073
<INVESTMENTS-AT-VALUE> 929,366,073
<RECEIVABLES> 755,567
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,485
<TOTAL-ASSETS> 930,141,125
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101,939,297
<TOTAL-LIABILITIES> 101,939,297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,400,010
<SHARES-COMMON-STOCK> 123,400,010
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (27,840)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 123,395,735
<DIVIDEND-INCOME> 1,182,057
<INTEREST-INCOME> 31,485,300
<OTHER-INCOME> 0
<EXPENSES-NET> 1,933,787
<NET-INVESTMENT-INCOME> 30,733,570
<REALIZED-GAINS-CURRENT> 6,649
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 30,740,219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,210,836)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 333,950,010
<NUMBER-OF-SHARES-REDEEMED> (210,550,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 336,364,606
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (34,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,814,290
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,503,999
<AVERAGE-NET-ASSETS> 87,298,963
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>063
<NAME>Nations Govt Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 374,587,738
<INVESTMENTS-AT-VALUE> 374,587,738
<RECEIVABLES> 1,988,930
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376,576,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,374,056
<TOTAL-LIABILITIES> 1,374,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,845,153
<SHARES-COMMON-STOCK> 24,845,499
<SHARES-COMMON-PRIOR> 108,169,411
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 24,845,366
<DIVIDEND-INCOME> 178,064
<INTEREST-INCOME> 14,895,371
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,742
<NET-INVESTMENT-INCOME> 13,798,693
<REALIZED-GAINS-CURRENT> 853
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,799,546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,631,142)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 646,626,695
<NUMBER-OF-SHARES-REDEEMED> (731,189,720)
<SHARES-REINVESTED> 1,239,113
<NET-CHANGE-IN-ASSETS> 208,784,337
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,062)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,077,145
<AVERAGE-NET-ASSETS> 32,640,567
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>061
<NAME>Nations Govt Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 374,587,738
<INVESTMENTS-AT-VALUE> 374,587,738
<RECEIVABLES> 1,988,930
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376,576,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,374,056
<TOTAL-LIABILITIES> 1,374,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 125,377,408
<SHARES-COMMON-STOCK> 125,377,425
<SHARES-COMMON-PRIOR> 58,122,320
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 125,376,757
<DIVIDEND-INCOME> 178,064
<INTEREST-INCOME> 14,895,371
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,742
<NET-INVESTMENT-INCOME> 13,798,693
<REALIZED-GAINS-CURRENT> 853
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,799,546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,121,538)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 396,992,148
<NUMBER-OF-SHARES-REDEEMED> (330,225,136)
<SHARES-REINVESTED> 488,093
<NET-CHANGE-IN-ASSETS> 208,784,337
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,062)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,077,145
<AVERAGE-NET-ASSETS> 59,728,576
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>062
<NAME>Nations Govt Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 374,587,738
<INVESTMENTS-AT-VALUE> 374,587,738
<RECEIVABLES> 1,988,930
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376,576,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,374,056
<TOTAL-LIABILITIES> 1,374,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,481,250
<SHARES-COMMON-STOCK> 6,481,676
<SHARES-COMMON-PRIOR> 129,395
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,481,642
<DIVIDEND-INCOME> 178,064
<INTEREST-INCOME> 14,895,371
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,742
<NET-INVESTMENT-INCOME> 13,798,693
<REALIZED-GAINS-CURRENT> 853
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,799,546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (319,759)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,431,378
<NUMBER-OF-SHARES-REDEEMED> (22,390,624)
<SHARES-REINVESTED> 311,527
<NET-CHANGE-IN-ASSETS> 208,784,337
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,062)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,077,145
<AVERAGE-NET-ASSETS> 6,292,443
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>064
<NAME>Nations Govt Reserves Market
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 374,587,738
<INVESTMENTS-AT-VALUE> 374,587,738
<RECEIVABLES> 1,988,930
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376,576,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,374,056
<TOTAL-LIABILITIES> 1,374,056
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 218,500,010
<SHARES-COMMON-STOCK> 218,500,010
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,209)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 218,498,847
<DIVIDEND-INCOME> 178,064
<INTEREST-INCOME> 14,895,371
<OTHER-INCOME> 0
<EXPENSES-NET> 1,274,742
<NET-INVESTMENT-INCOME> 13,798,693
<REALIZED-GAINS-CURRENT> 853
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,799,546
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,726,254)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 691,300,010
<NUMBER-OF-SHARES-REDEEMED> (472,800,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 208,784,337
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,062)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 833,883
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,077,145
<AVERAGE-NET-ASSETS> 180,287,374
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>013
<NAME>Nations Municipal Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 199,611,809
<INVESTMENTS-AT-VALUE> 199,611,809
<RECEIVABLES> 1,608,758
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 322,874
<TOTAL-ASSETS> 201,543,441
<PAYABLE-FOR-SECURITIES> 1,005,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 564,774
<TOTAL-LIABILITIES> 1,569,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,296,448
<SHARES-COMMON-STOCK> 7,296,448
<SHARES-COMMON-PRIOR> 55,512,046
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,152)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,296,406
<DIVIDEND-INCOME> 145,213
<INTEREST-INCOME> 6,725,037
<OTHER-INCOME> 0
<EXPENSES-NET> 763,259
<NET-INVESTMENT-INCOME> 6,106,991
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,106,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (236,155)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 60,607,746
<NUMBER-OF-SHARES-REDEEMED> (109,019,481)
<SHARES-REINVESTED> 196,137
<NET-CHANGE-IN-ASSETS> 89,246,512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,152)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 575,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,369,214
<AVERAGE-NET-ASSETS> 7,572,114
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>011
<NAME>Nations Municipal Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 199,611,809
<INVESTMENTS-AT-VALUE> 199,611,809
<RECEIVABLES> 1,608,758
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 322,874
<TOTAL-ASSETS> 201,543,441
<PAYABLE-FOR-SECURITIES> 1,005,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 564,774
<TOTAL-LIABILITIES> 1,569,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,701,299
<SHARES-COMMON-STOCK> 59,701,299
<SHARES-COMMON-PRIOR> 48,482,689
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,152)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 59,700,956
<DIVIDEND-INCOME> 145,213
<INTEREST-INCOME> 6,725,037
<OTHER-INCOME> 0
<EXPENSES-NET> 763,259
<NET-INVESTMENT-INCOME> 6,106,991
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,106,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,108,862)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,376,816
<NUMBER-OF-SHARES-REDEEMED> (177,158,206)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 89,246,512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,152)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 575,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,369,214
<AVERAGE-NET-ASSETS> 62,344,843
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>012
<NAME>Nations Municipal Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 199,611,809
<INVESTMENTS-AT-VALUE> 199,611,809
<RECEIVABLES> 1,608,758
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 322,874
<TOTAL-ASSETS> 201,543,441
<PAYABLE-FOR-SECURITIES> 1,005,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 564,774
<TOTAL-LIABILITIES> 1,569,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,677,062
<SHARES-COMMON-STOCK> 54,677,062
<SHARES-COMMON-PRIOR> 6,733,572
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,152)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 54,676,746
<DIVIDEND-INCOME> 145,213
<INTEREST-INCOME> 6,725,037
<OTHER-INCOME> 0
<EXPENSES-NET> 763,259
<NET-INVESTMENT-INCOME> 6,106,991
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,106,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,059,818)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 456,759,834
<NUMBER-OF-SHARES-REDEEMED> (409,796,778)
<SHARES-REINVESTED> 980,434
<NET-CHANGE-IN-ASSETS> 89,246,512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,152)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 575,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,369,214
<AVERAGE-NET-ASSETS> 32,703,822
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>014
<NAME>Nations Municipal Reserves Market
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 199,611,809
<INVESTMENTS-AT-VALUE> 199,611,809
<RECEIVABLES> 1,608,758
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 322,874
<TOTAL-ASSETS> 201,543,441
<PAYABLE-FOR-SECURITIES> 1,005,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 564,774
<TOTAL-LIABILITIES> 1,569,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,300,010
<SHARES-COMMON-STOCK> 78,300,010
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,152)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 78,299,559
<DIVIDEND-INCOME> 145,213
<INTEREST-INCOME> 6,725,037
<OTHER-INCOME> 0
<EXPENSES-NET> 763,259
<NET-INVESTMENT-INCOME> 6,106,991
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,106,991
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,702,156)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 339,700,010
<NUMBER-OF-SHARES-REDEEMED> (261,400,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 89,246,512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,152)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 575,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,369,214
<AVERAGE-NET-ASSETS> 89,596,442
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MUTUAL FUND CUSTODY AND SUB-CUSTODY AGREEMENT
THIS AGREEMENT is made as of the 18th day of October, 1996 by
and among NationsBank of Texas, N.A., a national banking association
("Custodian"), The Bank of New York, a New York corporation authorized to do a
banking business ("Sub-Custodian"), and Nations Institutional Reserves, a
Massachusetts business trust (the "Trust").
W I T N E S S E T H
WHEREAS, the Trust is a registered open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain Custodian to serve as
custodian for the Trust, on behalf of its portfolios listed on Schedule I
(individually a "Fund" and collectively the "Funds") and to provide the services
described herein, and Custodian is willing to serve and to provide such
services; and
WHEREAS, Custodian and Trust each desires to retain
Sub-Custodian to serve as the Trust's sub-custodian and provide the services
described herein, and Sub-Custodian is willing to so serve and to provide such
services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the Trust, Custodian and Sub-Custodian hereby agree
as follows:
1. Appointment. The Trust hereby appoints the Custodian to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Custodian accepts such appointment and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 23 hereof. The Custodian agrees to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder.
Custodian and Trust each hereby appoints Sub-Custodian to act as a
sub-custodian of the portfolio securities, cash and other property of the Trust
on the terms set forth in this Agreement. Sub-Custodian accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Paragraph 23 hereof, Sub-Custodian agrees to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder applicable to Sub-Custodian's performance of its services
hereunder.
The Trust may from time to time issue separate series or classes, and
classify and reclassify shares of any such series or class. Custodian or the
Trust shall promptly specify to Sub-Custodian in writing such series or classes,
or any reclassification, and thereafter Sub-Custodian shall identify to each
such series or class Property, as hereinafter defined, belonging to such series
or class, and such reports, confirmations and notices to the Trust called for
under this Agreement shall identify the series or class to which such report,
confirmation or notice pertains.
2. Delivery of Documents. The Trust has furnished to the Custodian and
Sub-Custodian copies properly certified or authenticated of each of the
following:
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(a) Resolutions of the Trust's Board of Trustees authorizing
the appointment of Custodian and Sub-Custodian as a custodian and sub-custodian
of portfolio securities, cash and other property of the Trust, respectively, and
approving and consenting to this Agreement;
(b) Schedule A identifying and containing the signatures of
the Trust's officers and/or other persons authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of the
Trust;
(c) Schedule B setting forth the names and signatures of the
present officers of the Trust;
(d) The Trust's current Registration Statement on Form N-1A
under the 1940 Act and the Securities Act of 1933, as amended (the "1933 Act"),
as filed with the Securities and Exchange Commission (the "SEC"), relating to
shares of beneficial interest of the Trust, without par value (the "Shares");
(e) The current prospectuses and statements of additional
information of each of the Funds, including all amendments and supplements
thereto (the "Prospectuses"); and
(f) A copy of the opinion of counsel for the Trust, with
respect to the validity of the Shares and the status of such Shares under the
1933 Act filed with the SEC, and any other applicable federal law or regulation.
The Trust shall furnish to Custodian and Sub-Custodian from
time to time copies, properly certified or authenticated, of all amendments of
or supplements to any of the foregoing.
3. Definitions.
(a) "Authorized Person". As used in this Agreement, the term
"Authorized Person" means any of the Trust's officers, and any other person,
whether or not any such person is an officer or employee of the Trust, duly
authorized by the Board of Trustees of the Trust to give Oral and Written
Instructions to Custodian and Sub-Custodian on behalf of the Trust and listed on
Schedule A, which may be amended from time to time. Authorized Persons duly
authorized by the Board of Trustees of the Trust to buy and sell foreign
currency on a spot and forward basis and options to buy and sell foreign
currency are denoted by an asterisk thereon.
(b) "Book-Entry System". As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities, its successor or successors and its
nominee or nominees and any book-entry system maintained by a clearing agency
registered with the SEC under Section 17A of the Securities Exchange Act of 1934
(the "1934 Act").
(c) "Composite Currency Unit". Shall mean the European
Currency Unit or any other composite unit consisting of the aggregate of
specified amounts of specified Currencies as such unit may be constituted from
time to time.
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(d) "Currency". Shall mean money denominated in a lawful
currency of any country or the European Currency Unit.
(e) "FX Transaction". Shall mean any transaction for the
purchase by one party of an agreed amount in one Currency against the sale by it
to the other party of an agreed amount in another Currency.
(f) "Instructions". Shall mean instruction communications
transmitted by electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface, dedicated transmission line, facsimile
transmission (which may be signed or unsigned) and tested telex.
(g) "Oral Instructions". As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by Custodian or
Sub-Custodian from an Authorized Person or from a person reasonably believed by
Custodian or Sub-Custodian to be an Authorized Person.
(h) "Officer's Certificate". The term "Officer's Certificate"
as used in this Agreement means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending device, and actually received by
Custodian or Sub-Custodian signed or reasonably believed by Custodian or
Sub-Custodian to be signed by two officers of the Trust listed on Schedule B.
(i) "Property". The term "Property", as used in this
Agreement, means:
(i) any and all securities and other property of the
Trust which the Trust or Custodian may from time to time deliver to Custodian or
Sub-Custodian, as applicable, or which Custodian or Sub-Custodian may from time
to time hold for the Trust;
(ii) all income in respect of any securities or other
property described in immediately preceding clause (i);
(iii) all proceeds of sales of any of such securities
or other property described in preceding clause (i) actually received by
Custodian or Sub-Custodian; and
(iv) proceeds of the sale of Shares received by
Custodian or Sub-Custodian from time to time from or on behalf of the Trust.
(j) "Securities Depository". As used in this Agreement, the
term "Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Trust's Board of Trustees approving deposits by the Custodian
or Sub-Custodian therein.
(k) "Written Instructions". As used in this Agreement,
"Written Instructions" means instructions delivered by hand, mail, tested
telegram, cable, telex, or facsimile sending
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device, and actually received by the Custodian or Sub-Custodian, signed or
reasonably believed by the Custodian or Sub-Custodian to be signed by two
Authorized Persons, and the term Written Instructions shall also include
Instructions.
4A. Services of Custodian. The Custodian shall be responsible for
oversight and monitoring of the performance by the Sub-Custodian of the duties
assumed by it hereunder. Such oversight and monitoring shall include, but not be
limited to, coordinating communication between the Funds' investment adviser(s)
and the Sub-Custodian with respect to Fund trading activity, assisting with
failed trade resolution, reviewing Fund cash management activity with the
Sub-Custodian, reviewing posting of income to Fund accounts, monitoring
Sub-Custodian's reporting of corporate actions to the Funds' investment
adviser(s) and communications related thereto, facilitating the establishment of
Fund accounts on the Sub-Custodian's custody system, and assisting in the
resolution of any issues between the Sub-Custodian and the Funds.
In no case, however, shall the Custodian have physical custody of any
of the Funds' securities, cash or other monies.
4B. Delivery and Registration of the Property. Custodian or the Trust
shall deliver or cause to be delivered to Sub-Custodian all securities and all
monies owned by the Funds, including cash received for the issuance of Shares,
at any time during the period of this Agreement, except for securities and
monies to be delivered to any other sub-custodian appointed, with approval of
Trust, by Custodian or Sub-Custodian pursuant to Paragraphs 7, 27, or 28(g)
hereof. Sub-Custodian will not be responsible for such securities and such
monies until actually received by it. All securities delivered to Sub-Custodian
(other than in bearer form) shall be registered in the name of the Fund or in
the name of a nominee of a Fund or in the name of Sub-Custodian or any nominee
of Sub-Custodian (with or without indication of fiduciary status) or in the name
of any sub-custodian or any nominee of such sub-custodian appointed, with
approval of Trust, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be
properly endorsed and in form for transfer satisfactory to Sub-Custodian.
5. Voting Rights. With respect to all securities, however registered,
it is understood that the voting and other rights and powers shall be exercised
by the Trust. Sub-Custodian's only duty shall be to mail to the Trust within two
(2) business days following receipt by the Sub-Custodian any documents received
by Sub-Custodian as sub-custodian, including proxy statements and offering
circulars, with any proxies for securities registered in a nominee name executed
by such nominee. Where warrants, options, tenders or other securities have fixed
expiration dates, the Trust understands that in order for Sub-Custodian to act,
Sub-Custodian must receive the Trust's instructions at its offices in New York,
addressed as Sub-Custodian may from time to time request, by no later than noon
(New York City time) at least one (1) business day prior to the last scheduled
date to act with respect thereto (or such earlier date or time as Sub-Custodian
may reasonably notify the Trust and Custodian). Absent Sub-Custodian's timely
receipt of such instructions, such instructions will expire without liability to
Sub-Custodian. Corporate reports need not be forwarded to the Trust.
6. Receipt and Disbursement of Money.
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(a) Sub-Custodian shall open and maintain a custody account
for each Fund of the Trust, subject only to draft or order by Sub-Custodian
acting pursuant to the terms of this Agreement, and, subject to Paragraphs 7,
27, or 28(g) hereof, shall hold in such account, subject to the provisions
hereof, all cash received by it from or for the Funds. Sub-Custodian shall make
payments of cash to, or for the account of, each Fund from such cash only (i)
for the purchase of securities for the Funds as provided in Paragraph 14 hereof;
(ii) upon receipt of an Officer's Certificate for the payment of dividends or
other distributions on or with respect to Shares, or for the payment of
interest, taxes, administration, distribution or advisory fees or expenses which
are to be borne by the Funds under the terms of this Agreement and, with respect
to each Fund, and under the terms of any investment advisory agreements,
administration agreement or distribution agreement; (iii) upon receipt of
Written Instructions for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Funds and held by or to be
delivered to Sub-Custodian; (iv) to a sub-custodian or co-custodian pursuant to
Paragraphs 7, 27, or 28(g) hereof; or (v) for the redemption of Shares; or (vi)
upon receipt of an Officer's Certificate for other corporate purposes.
(b) Sub-Custodian is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Funds.
7. Receipt of Securities.
(a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g)
hereof, and except as otherwise directed by Oral or Written Instructions
described in Paragraph 11 hereof, Sub-Custodian shall hold and physically
segregate in a separate account with respect to each Fund, identifiable from
those of any other person, all securities and non-cash property received by it
for the Funds. All such securities and non-cash property are to be held or
disposed of by Sub-Custodian for each Fund pursuant to the terms of this
Agreement. In the absence of Written Instructions accompanied by a certified
resolution authorizing the specific transaction by the Trust's Board of
Trustees, and subject to Paragraph 25 hereof, Sub-Custodian shall have no power
or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise
dispose of any such securities and investments, except in accordance with the
express terms provided for in this Agreement. In no case may any director,
officer, employee or agent of the Trust or of Custodian withdraw any securities.
In connection with its duties under this Paragraph 7(a), Sub-Custodian may, with
the prior written approval of Trust and Custodian, enter into sub-custodian
agreements with other banks or trust companies for the receipt of certain
securities and cash to be held by Sub-Custodian for the account of a Fund
pursuant to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than one million dollars ($1,000,000) for a Sub-Custodian
subsidiary or affiliate, or of not less than twenty million dollars
($20,000,000) for a sub-custodian that is not a subsidiary or affiliate of
Sub-Custodian and that in either case such bank or trust company agrees with
Sub-Custodian to comply with the provisions of the 1940 Act and applicable rules
and regulations thereunder applicable to its performance of its services.
Sub-Custodian will provide the Trust and Custodian with a copy of each
sub-custodian agreement it executes pursuant to this Paragraph 7(a).
Sub-Custodian shall be liable for acts or omissions of any such sub-custodian
selected by it pursuant to this Paragraph 7(a), under the standards of care
provided for herein, except for any such sub-custodian engaged at the specific
direction of the Funds.
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Notwithstanding anything herein to the contrary, this Paragraph 7(a) shall not
apply to Sub-Custodian's engagement of foreign sub-custodians, which shall
instead be governed by Paragraph 27 hereof.
(b) Promptly after the close of business on each day,
Sub-Custodian shall furnish the Trust and/or Custodian with confirmations and a
summary of all transfers to or from the account of each Fund during said day.
Where securities are transferred to the account of any Fund established at a
Securities Depository or the Book Entry System pursuant to Paragraph 8 hereof,
Sub-Custodian shall also, by book-entry or otherwise, identify as belonging to
such Fund the quantity of securities in a fungible bulk of securities registered
in the name of Sub-Custodian (or its nominee) or shown in Sub-Custodian's
account on the books of a Securities Depository or the Book-Entry System. At
least monthly and from time to time, Sub-Custodian shall furnish the Trust
and/or Custodian with a detailed statement of the Property held for each Fund
under this Agreement.
(c) Notwithstanding any provision elsewhere contained herein,
Sub-Custodian shall not be required to obtain possession of any instrument or
certificate representing any futures contract, any option, or any futures
contract option until after it shall have determined, or shall have received an
Officer's Certificate from the Trust stating that any such instruments or
certificates are available. The Trust shall deliver to Sub-Custodian such an
Officer's Certificate no later than the business day preceding the availability
of any such instrument or certificate. Prior to such availability, Sub-Custodian
shall comply with the 1940 Act in connection with the purchase, sale,
settlement, closing out or writing of futures contracts, options, or futures
contract options by making payments or deliveries specified in such Officer's
Certificates or Written Instructions received by Sub-Custodian in connection
with any such purchase, sale, writing, settlement or closing out upon its
receipt from a broker, dealer, or futures commission merchant of a statement or
confirmation reasonably believed by Sub-Custodian to be in the form customarily
used by brokers, dealers, or future commission merchants with respect to such
futures contracts, options, or futures contract options, as the case may be,
confirming that the same is held by such broker, dealer or futures commission
merchant, in book-entry form or otherwise, in the name of Sub-Custodian (or any
nominee of Sub-Custodian) as Sub-Custodian for the Fund, provided, however, that
notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments
to or deliveries from any margin account, and payments with respect to future
contracts, options, or future contract options to which a margin account
relates, shall be made in accordance with the terms and conditions of the
Trust's relevant margin account agreement. Whenever any such instruments or
certificates are available, Sub-Custodian shall, notwithstanding any provision
in this Agreement to the contrary, make payment for any futures contract,
option, or futures contract option for which such instruments or such
certificates are available against the delivery to Sub-Custodian of such
instrument or such certificate, and deliver any futures contract, option or
futures contract option for which such instruments or such certificates are
available only against receipt by Sub-Custodian of payment therefor. Any such
instrument or certificate delivered to Sub-Custodian shall be held by
Sub-Custodian hereunder in accordance with, and subject to, the provisions of
this Agreement.
8. Use of Securities Depository or the Book-Entry System. Custodian or
the Trust shall deliver to Sub-Custodian a certified resolution of the Board of
Trustees of the Trust
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approving, authorizing and instructing Sub-Custodian on a continuous and ongoing
basis until instructed to the contrary by Written Instructions (i) to deposit in
a Securities Depository or the Book-Entry System all securities of the Funds
held hereunder eligible for deposit therein and (ii) to utilize a Securities
Depository or the Book-Entry System to the extent possible in connection with
the performance of its duties hereunder, including without limitation
settlements of purchases and sales of securities by the Funds, and deliveries
and returns of securities loaned, subject to repurchase agreements or used as
collateral in connection with borrowings. Without limiting the generality of
such use, the following provisions shall apply thereto:
(a) Securities and any cash of the Funds deposited by
Sub-Custodian in a Securities Depository or the Book-Entry System will at all
times be segregated from any assets and cash controlled by Sub-Custodian in
other than a fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof,
Sub-Custodian and its sub-custodians, if any, will pay out money only upon
receipt of securities and will deliver securities only upon receipt of money,
absent Written Instructions to the contrary.
(b) All books and records maintained by Sub-Custodian that
relate to the Funds' participation in a Securities Depository or the Book-Entry
System will at all times during Sub-Custodian's regular business hours be open
to inspection by the Trust's and/or Custodian's duly authorized employees or
agents and the Trust's independent auditors in accordance with applicable
regulations, it being understood, however, that such records may be kept in an
off site Sub-Custodian storage location and the Trust and Custodian will be
furnished with all information in respect of the services rendered to it as it
may require.
(c) Sub-Custodian will provide the Trust with copies of any
report obtained by Sub-Custodian on the system of internal accounting control of
the Securities Depository or Book-Entry System promptly after receipt of such a
report by Sub-Custodian. Sub-Custodian will also provide the Trust and/or
Custodian with such reports on its own system of internal control as the Trust
and/or Custodian may reasonably request from time to time.
9. Instructions Consistent With the Charter, Etc. Unless otherwise
provided in this Agreement, Custodian and Sub-Custodian shall act only upon
Officer's Certificates, Oral Instructions and/or Written Instructions. Custodian
and Sub-Custodian may assume that any Officer's Certificate, Oral Instructions
or Written Instructions received hereunder are not in any way inconsistent with
any provision of the Charter or Code of Regulations or any vote or resolution of
the Trust's Board of Trustees, or any committee thereof. Custodian and
Sub-Custodian shall be entitled to rely upon any Oral Instructions or Written
Instructions actually received by Custodian and Sub-Custodian pursuant to this
Agreement, and upon any certificate, oral instructions, or written instructions
reasonably believed by Custodian and Sub-Custodian to be, respectively, an
Officer's Certificate, Oral Instructions or Written Instructions. The Trust and
Custodian agree to forward to Custodian and Sub-Custodian, as the case may be,
Written Instructions confirming Oral Instructions in such manner that the
Written Instructions are received by Custodian and Sub-Custodian at the close of
business of the same day that such Oral Instructions are given to Custodian and
Sub-Custodian. The Trust and Custodian agree that the fact that such confirming
Written Instructions are not received by Sub-Custodian shall in no way affect
the validity of any of the transactions authorized by the Trust by giving Oral
Instructions,
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and that Sub-Custodian's records with respect to the content of Oral
Instructions shall be controlling.
10. Transactions-Not Requiring Instructions. Sub-Custodian is
authorized to take the following action without Oral Instructions, Written
Instructions, or an Officer's Certificate:
(a) Collection of Income and Other Payments. Sub-Custodian
shall subject to Paragraph 28(f) hereof:
(i) collect and receive for the account of any Fund,
all income and other payments and distributions, including (without limitation)
stock dividends, rights, warrants and similar items, included or to be included
in the Property of any Fund, and promptly advise the Trust and Custodian of such
receipt and shall credit such income, as collected, to such Fund of the Trust.
From time to time, Sub-Custodian may elect, but shall not be so obligated, to
credit the account with interest, dividends or principal payments on payable or
contractual settlement date, in anticipation of receiving same from a payor,
central depository, Securities Depository, broker or other agent employed by the
Trust or Sub-Custodian. Any such crediting and posting shall be at the Trust's
sole risk, and Sub-Custodian shall be authorized to reverse (A) any such advance
posting in the event it does not receive good funds from any such payor, central
depository, Securities Depository, broker or agent, and (B) any other payment or
crediting, including, without limitation, payments made by check or draft, in
the event it does not receive good funds or final payment.
(ii) with respect to securities of foreign issue, and
subject to Paragraph 27 hereof, effect collection of dividends, interest and
other income, and to promptly transmit to the Trust and Custodian all reports,
written information or notices actually received by Sub-Custodian as
sub-custodian, including notices of any call for redemption, offer of exchange,
right of subscription, reorganization, or other proceedings affecting such
securities, or any default in payments due thereon. It is understood, however,
that Sub-Custodian shall be under no responsibility for any failure or delay in
effecting such collections or giving such notice with respect to securities of
foreign issue, regardless of whether or not the relevant information is
published in any financial service available to it unless such failure or delay
is due to Sub-Custodian's own negligence. Collections of income in foreign
currency are, to the extent possible, to be converted into United States dollars
unless otherwise instructed in writing, and in effecting such conversion
Sub-Custodian may use such methods or agencies as it may see fit, including the
facilities of its own foreign division at customary rates. All risk and expenses
incident to such collection and conversion are for the account of the Funds and
Sub-Custodian shall have no responsibility for fluctuations in exchange rates
affecting any such conversions.
(iii) endorse and deposit for collection in the name
of the Trust and each of its Funds, checks, drafts, or other orders for the
payment of money on the same day as received;
(iv) receive and hold for the account of each of the
Fund's securities received by the Funds as a result of a stock dividend, share
split-up or reorganization,
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recapitalization, readjustment or other rearrangement or distribution of rights
or similar securities issued with respect to any portfolio securities of the
Funds held by Sub-Custodian hereunder;
(v) present for payment and collect the amount
payable upon all securities which may mature or be called, redeemed or retired,
or otherwise become payable on the date such securities become payable, but,
with respect to calls, early redemptions, or early retirements, only if
Sub-Custodian either (i) receives a written notice of the same or (ii) notice of
the same appears in one or more of the publications then listed in Appendix A
hereto, which Appendix may be amended to add other publications at any time by
Sub-Custodian without prior notice to or consent from the Trust or Custodian and
which may be amended to delete a publication with the prior notice and consent
from the Trust and Custodian;
(vi) subject to Paragraphs 28(e) and (f) hereof, take
any action which may be necessary and proper in connection with the collection
and receipt of such income and other payments and the endorsement for collection
of checks, drafts and other negotiable instructions;
(vii) with respect to domestic securities, to
exchange securities in temporary form for securities in definitive form, to
effect an exchange of the shares where the par value of stock is changed, and to
surrender securities at maturity or when advised by the Trust or the investment
adviser to the Trust of earlier call for redemption, against payment therefor in
accordance with accepted industry practice. When fractional shares of stock of a
declaring corporation are received as a stock distribution, Sub-Custodian is
authorized to sell the fraction received and credit the Trust's account. Unless
specifically instructed to the contrary in writing, Sub-Custodian is authorized
to exchange securities in bearer form for securities in registered form. If any
Property registered in the name of a nominee of Sub-Custodian is called for
partial redemption by the issuer of such Property, Sub-Custodian is authorized
to allot the called portion to the respective beneficial holders of the Property
in such manner deemed to be fair and equitable by Sub-Custodian in its
reasonable discretion.
(b) Miscellaneous Transactions. Sub-Custodian is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
(i) for examination by a broker selling for the
account of the Trust in accordance with street delivery custom;
(ii) for the exchange for interim receipts or
temporary securities for definitive securities;
(iii) for transfer of securities into the name of the
Funds or Sub-Custodian or a nominee of either, or for exchange or securities for
a different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to Sub-Custodian.
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11. Transactions Requiring Instructions. Upon receipt of Oral or
Written Instructions, and not otherwise, Sub-Custodian, directly or through the
use of a Securities Depository or the Book-Entry System, shall:
(a) Execute and deliver to such persons as may be designated
in such Oral or Written Instructions, proxies, consents, authorizations, and any
other instruments whereby the authority of the Funds as owners of any securities
may be exercised;
(b) Deliver any securities held for any Fund against receipt
of other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(c) Deliver any securities held for any Fund to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, against receipt of such certificates or deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of any Fund
and take such other steps as shall be stated in said instructions to be for the
purposes of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Funds;
(e) Subject to Paragraph 25(b) hereof, release securities
belonging to any Fund to any bank or trust company for the purpose of pledge or
hypothecation to secure any loan incurred by such Fund; provided, however, that
securities shall be released only upon payment to Sub-Custodian of the monies
borrowed, except that in cases where additional collateral is required to secure
a borrowing already made, subject to proper prior authorization, further
securities may be released for that purpose; and pay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan;
(f) Deliver any securities held for any Fund upon the exercise
of a covered call option written by such Fund on such securities;
(g) Release and deliver securities owned by a Fund in
connection with any repurchase agreement entered into on behalf of such Fund,
but subject to Paragraph 28(m) hereof, only on receipt of payment therefor; and
pay out monies of such Fund in connection with such repurchase agreements, but
only upon the delivery of the securities;
(h) otherwise transfer, exchange or deliver securities in
accordance with Oral or Written Instructions specifying the purpose of such
transfer, including without limitation, loans of securities, short sales, or
reverse repurchase agreements, and subject to Paragraph 7(a) hereof.
12. Segregated Accounts. Sub-Custodian shall upon receipt of Written or
Oral Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of any Fund, into which account or accounts shall be
credited, but only pursuant to an
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Officer's Certificate or Written Instructions
specifying the particular securities and/or amount of cash, cash and/or
securities, including securities in the Book-Entry System (i) for the purposes
of compliance by the Funds and the Trust with the procedures required by a
securities or option exchange, (ii) for the purpose of compliance by the Funds
and the Trust with the 1940 Act and Release No. 10666 or any subsequent release
or releases of the SEC relating to the maintenance of segregated accounts by
registered investment companies, and (iii) for other proper corporate purposes.
13. Dividends and Distributions.
(a) The Trust and/or Custodian shall furnish Sub-Custodian
with appropriate evidence of action by the Trust's Board of Trustees declaring
and authorizing the payment of any dividends and distributions. Upon receipt by
Sub-Custodian of an Officer's Certificate with respect to dividends and
distributions declared by the Trust's Board of Trustees and payable to
shareholders of any Fund who are entitled to receive cash for fractional shares
and those who have elected in the proper manner to receive their distributions
on dividends in cash, and in conformance with procedures mutually agreed upon by
Custodian and Sub-Custodian, the Trust, and the Trust's administrator or
transfer agent, Sub-Custodian shall pay to the Fund's transfer agent, as agent
for the shareholders, an amount equal to the amount indicated in said Officer's
Certificate as payable by the Fund to such shareholders for distribution in cash
by the transfer agent to such shareholders.
(b) Sub-Custodian may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that the Trust or Custodian
uses (each an "FCM Agreement"), pursuant to which the Funds' margin deposits in
any transactions involving futures contracts and options on futures contracts
will be held by Sub-Custodian in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and the Trust ("FCM Contract"), SEC rules
governing such segregated accounts, Commodities and Futures Trading Commission
("CFTC") rules and the rules of the applicable commodities exchange. Such FCM
Agreements shall only be entered into by Sub-Custodian upon receipt by
Sub-Custodian of Written Instructions from the Trust which state that (i) an FCM
Contract has been entered into; (ii) the Trust is in compliance with all the
rules and regulations of the CFTC; and (iii) the FCM Agreement is acceptable to
the Trust. Transfers of initial margin shall be made into an FCM Account only
upon Written Instructions; transfers of premium and variation margin may be made
into an FCM Account pursuant to Oral Instructions. Transfers of funds from an
FCM Account to the FCM for which Custodian holds such an account may only occur
in accordance with the terms of the FCM Agreement.
14. Purchase of Securities. Promptly after each purchase of securities
by the Trust on behalf of any Fund, the Trust or Custodian shall deliver to
Sub-Custodian Oral or Written Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title of the securities, (b) the
number of shares of the principal amount purchased and accrued interest, if any,
(c) the dates of purchase and settlement, (d) the purchase price per unit, (e)
the total amount payable upon such purchase, (f) the name of the person from
whom or the broker through whom the purchase was made and (g) the Fund for which
the purchase was made. Sub-Custodian shall upon receipt of securities purchased
by or for the Trust pay out of the monies held for the
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account of the Trust the total amount payable to the person from whom or the
broker through whom the purchase was made, provided that the same conforms to
the total amount payable as set forth in such Oral or Written Instructions.
15. Sales of Securities. Promptly after each sale of securities by the
Funds, the Trust or Custodian shall deliver to Sub-Custodian Oral or Written
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the security, (b) the number of shares or principal
amount sold, and accrued interest, if any, (c) the dates of sale, (d) the sale
price per unit, (e) the total amount payable to the Trust upon such sale, (f)
the name of the broker through whom or the person to whom the sale was made and
(g) the Fund for which the sale was made. Sub-Custodian shall, subject to
Paragraph 28(m) hereof, deliver the securities against payment of the total
amount payable to the Trust upon such sale, provided that the same conforms to
the total amount payable as set forth in such Oral and Written Instructions.
16. Records. The books and records pertaining to the Funds and the
Trust which are in the possession of Sub-Custodian shall be the property of the
Trust. Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws and rules and regulations. The
SEC, the Trust, or the Trust's authorized representatives, shall have access to
such books and records at all times during Sub-Custodian's normal business
hours. Upon the reasonable request of the Trust or Custodian, copies of any such
books and records shall be provided by Sub-Custodian to the Custodian, the Trust
or the Trust's authorized representative, and the Trust shall reimburse
Sub-Custodian reasonable expenses for providing such copies. Upon reasonable
request of the Trust or the Custodian, Sub-Custodian shall provide in hard copy,
tape or on micro-film, or such other medium as agreed to among Trust, Custodian
and Sub-Custodian, and any books and records maintained by Sub-Custodian.
17. Reports.
(a) Sub-Custodian shall furnish the Trust and Custodian the
following reports:
(i) such periodic and special reports as the Trust
and Custodian may reasonably request from time to time;
(ii) a monthly statement summarizing all transactions
and entries for the account of each Fund;
(iii) a monthly report of portfolio securities
belonging to each Fund showing the adjusted average cost of each issue and
market value at the end of such month;
(iv) a monthly report of the cash account of each
Fund showing disbursements;
(v) the reports to be furnished to the Trust pursuant
to Rule 17f-4 under the 1940 Act; and
(vi) such other information as may be agreed upon
from time to time between the Trust and/or Custodian and Sub-Custodian.
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(b) Subject to Paragraphs 5 and 27(g) hereof, Sub-Custodian
shall transmit promptly to the Trust any proxy statement, proxy materials,
notice of a call or conversion or similar communications actually received by
Sub-Custodian as custodian of the Property.
(c) Sub-Custodian shall report as the market value at the end
of each month the last closing bid, offer or sale price to the extent, and as
the same, is furnished to Sub-Custodian by a pricing or similar service utilized
or subscribed to by Sub-Custodian. Sub-Custodian shall not be responsible for,
have any liability with respect to, or be under any duty to inquire into, nor
deemed to make any assurances with respect to, the accuracy or completeness of
such information, even if The Bank of New York in performing services for
others, including services similar to those performed hereunder, receives
different valuations of the same or different securities of the same issuer.
18. Cooperation with Accountants. Each of the Custodian and
Sub-Custodian shall cooperate with the Trust's independent certified public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement, and obligations under Rule 17f-2 under the
1940 Act to the extent such rule is applicable, to assure that the necessary
information is made available to such accountants.
19. Confidentiality. Each of Custodian and Sub-Custodian agrees on
behalf of itself and its employees to treat all record and other information
relative to the Trust, its prior, present or potential shareholders, its
managers and its prior, present or potential customers, as confidential
information, and to protect and safeguard the same to the extent required by
applicable law, provided, however, that Custodian and Sub-Custodian may make
such disclosure as required by applicable law, regulation, court order, decrees
or legal process and upon receipt of any of the foregoing requiring such
disclosure, Custodian and Sub-Custodian's only obligation shall be to notify the
Trust thereof. Each of Custodian and Sub-Custodian further agrees not to
otherwise use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust.
20. Equipment Failures. In the event of equipment failures beyond
Sub-Custodian's control, Sub-Custodian shall take reasonable steps to minimize
service interruptions but neither it nor Custodian shall have any further
liability with respect thereto. Notwithstanding the foregoing, Sub-Custodian
shall maintain sufficient back up electronic data processing equipment to enable
Sub-Custodian to fulfill its obligations under this Agreement consistent with
standard industry practices.
21. Right to Receive Advice.
(a) Advice of Fund. If Custodian or Sub-Custodian shall be in
doubt as to any action to be taken or omitted by it, either may request, and
shall receive, from the Trust clarification or advice, including Oral or Written
Instructions.
(b) Advice of Counsel. If Custodian or Sub-Custodian shall be
in doubt as to any question of law involved in any action to be taken or omitted
by Custodian or Sub-Custodian,
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either may request at its option advice from its own counsel, at its own
expense, or advice from the Trust's counsel.
(c) Conflicting Advice. In case of conflict between
directions, advice or Oral or Written Instructions received by Custodian or
Sub-Custodian pursuant to subparagraph (a) of this paragraph and advice received
by Custodian or Sub-Custodian pursuant to subparagraph (b) of this paragraph,
Custodian and Sub-Custodian shall be entitled to rely on and follow the advice
received pursuant to subparagraph (b) alone.
(d) Protection of Sub-Custodian. Each of Custodian and
Sub-Custodian shall be protected in any action or inaction which it takes or
omits to take in reliance on any directions, advice or Oral or Written
Instructions received pursuant to subparagraphs (a) or (b) of this section which
it, after receipt of any such directions, advice or Oral or Written
Instructions, in good faith reasonably believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. Nothing
in this Paragraph 21 shall be construed as imposing upon Custodian or
Sub-Custodian any obligation (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions when received, unless, under the terms or
another provision of this Agreement, the same is a condition to Custodian or
Sub-Custodian's properly taking or omitting to take such action. Nothing in this
Paragraph 21(d) shall excuse Custodian or Sub-Custodian when an action or
omission on the part of Custodian or Sub-Custodian constitutes willful
misfeasance or bad faith, or negligence or reckless disregard by Custodian or
Sub-Custodian of its duties under this Agreement.
22. Compliance with Governmental Rules and Regulations. Each of
Custodian and Sub-Custodian undertakes to comply with the laws, rules and
regulations of governmental authorities having jurisdiction over Custodian and
Sub-Custodian and its express duties hereunder.
23. Compensation. As compensation for the services rendered by
Custodian and Sub-Custodian during the term of this Agreement, the Trust shall
pay to Custodian and Sub-Custodian, in addition to reimbursement of its
out-of-pocket expenses, such compensation as may be agreed upon from time to
time in writing by the Trust and Custodian and/or Sub-Custodian, as applicable
as set forth in Appendix E with respect to Custodian and Appendix F with respect
to Sub-Custodian.
24. Indemnification. The Trust agrees to indemnify each of Custodian
and Sub-Custodian against, and hold harmless from all taxes, charges, expenses
(including reasonable fees and expenses of counsel), assessments, claims,
losses, demands and liabilities whatsoever (including, without limitation,
liabilities arising under the 1933 Act, the 1934 Act and the 1940 Act, and any
state and foreign securities laws, all as currently in effect or as may be
amended from time to time) and expenses, including without limitation,
reasonable attorney's fees and disbursements, howsoever arising or incurred
because of or in connection with this Agreement, except for such liability,
claim, loss, demand, charge, expense, tax or assessment arising out of either
Custodian's or Sub-Custodian's, or their nominees', willful misconduct or
negligence or reckless disregard of their duties under this Agreement. For the
purposes of this Agreement,
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including, without limitation, for purposes of Paragraphs 24 and 28, neither
Sub-Custodian's acceptance of Instructions in accordance with Paragraph 26A nor
Sub-Custodian's use of Foreign Sub-Custodians pursuant to agreements that do not
permit actual examination by independent public accountants, nor the denial of
examination by any Foreign Sub-Custodian, shall, in and of itself, constitute,
or be deemed to constitute, a breach by Sub-Custodian of this Agreement or
negligence, willful misconduct, or reckless disregard of its duties by
Sub-Custodian, provided the relevant agreement between Sub-Custodian and a
Foreign Sub-Custodian satisfies the requirements of Rule 17f-5, exclusive of any
requirements of such Rule imposed by Rule 17f-2.
25. Overdrafts or Indebtedness.
(a) Sub-Custodian shall advance funds under this Agreement
with respect to any Fund which results in an overdraft because the moneys held
by Sub-Custodian in the separate account for such Fund shall be insufficient to
pay the total amount payable upon a purchase of securities by such Fund, as set
forth in an Officer's Certificate or Oral or Written Instructions, or which
results in an overdraft in the separate account of such Fund for some other
reason, or if the Trust is for any other reason indebted to Sub-Custodian,
including any indebtedness to The Bank of New York under the Trust's Cash
Management and Related Services Agreement, (except a borrowing for investment or
for temporary or emergency purposes using securities as collateral pursuant to a
separate agreement and subject to the provisions of Paragraph 25(b) hereof),
such overdraft or indebtedness shall be deemed to be a loan made by
Sub-Custodian to the Trust for such Fund payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to the overdraft rate specified in
Appendix F to this Agreement. In addition, the Trust hereby agrees that
Sub-Custodian shall have a continuing lien and security interest in and to any
property at any time held by it for the benefit of such Fund or in which the
Fund may have an interest which is then in Sub-Custodian's possession or control
or in possession or control of any third party acting on Sub-Custodian's behalf.
The Trust authorizes Sub-Custodian, in its sole discretion, at any time to
charge any such overdraft or indebtedness together with interest due thereon
against any balance of account standing to such Fund's credit on Sub-Custodian's
books. In addition, the Trust hereby covenants that on each Business Day on
which either it intends to enter a Reverse Repurchase Agreement and/or otherwise
borrow from a third party, or which next succeeds a Business Day on which at the
close of business the Trust had outstanding a Reverse Repurchase Agreement or
such a borrowing, it shall prior to 1:00 p.m., New York City time, advise
Sub-Custodian, in writing, of each such borrowing, shall specify the Fund to
which the same relates, and shall not incur any indebtedness not so specified
other than from Sub-Custodian.
(b) The Trust will cause to be delivered to Sub-Custodian by
any bank (including, if the borrowing is pursuant to a separate agreement,
Sub-Custodian) from which it borrows money for investment or for temporary or
emergency purposes using securities held by Sub-Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by such bank setting forth the amount which such bank will loan to the
Trust against delivery of a stated amount of collateral. The Trust shall
promptly deliver to Sub-Custodian Written Instruction specifying with respect to
each such borrowing: (a) the Fund to which such borrowing relates; (b) the name
of the bank, (c) the amount and terms of the borrowing, which may be set forth
by incorporating by reference an attached promissory note, duly
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endorsed by the Fund, or other loan agreement, (d) the time and date, if known,
on which the loan is to be entered into, (e) the date on which the loan becomes
due and payable, (f) the total amount payable to the Fund on the borrowing date,
(g) the market value of securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
principal amount of any particular securities, and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the 1940 Act and the Fund's
prospectus. Sub-Custodian shall deliver on the borrowing date specified in
Written Instructions the specified collateral and the executed promissory note,
if any, against delivery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount payable as set
forth in such Written Instructions. Sub-Custodian may, at the option of the
lending bank, keep such collateral in its possession, but such collateral shall
be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. Sub-Custodian shall deliver such securities
as additional collateral as may be specified in Written Instructions to
collateralize further any transaction described in this Paragraph 25(b). The
Trust shall cause all securities released from collateral status to be returned
directly to Sub-Custodian, and Sub-Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the event that the Trust
fails to specify in Written Instructions the Fund, the name of the issuer, the
title and number of shares or the principal amount of any particular securities
to be delivered as collateral by Sub-Custodian, Sub-Custodian shall not be under
any obligation to deliver any securities.
26A. Instructions
(a) With respect to any software provided by the Sub-Custodian
to a Fund in order for the Fund to transmit Instructions to the Sub-Custodian
(the "Software"), the Sub-Custodian grants to the Trust a personal,
nontransferable and nonexclusive license to use the Software solely for the
purpose of transmitting Instructions to, and receiving communications from, the
Sub-Custodian in connection with its account(s). The Trust agrees not to sell,
reproduce, lease or otherwise provide, directly or indirectly, the Software or
any portion thereof to any third party without the prior written consent of the
Sub-Custodian. At no time shall Trust be obligated to use the Software to
transmit Instructions to the Sub-Custodian.
(b) The Trust shall obtain and maintain at its own cost and
expense all equipment and services, including but not limited to communications
services, necessary for it to utilize the Software and transmit Instructions to
the Sub-Custodian. The Sub-Custodian shall not be responsible for the
reliability, compatibility with the Software or availability of any such
equipment or services.
(c) The Trust acknowledges that the Software, all data bases
made available to the Trust by utilizing the Software (other than data bases
relating solely to the assets of the Funds and transactions with respect
thereto), and any proprietary data, processes, information and documentation
(other than those which are or become part of the public domain or are legally
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of the Sub-Custodian. The Trust
shall keep the Information confidential by using the same care and discretion
that the Trust uses with respect to its own confidential property and trade
secrets and shall neither make nor permit any disclosure without the prior
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written consent of the Sub-Custodian. Upon termination of this Agreement or the
Software license granted hereunder for any reason, the Trust shall return to the
Sub-Custodian all copies of the Information which are in its possession or under
its control or which the Trust distributed to third parties.
(d) The Sub-Custodian reserves the right to modify the
Software from time to time upon reasonable prior notice and the Trust shall, if
it desires in its sole discretion to continue to use the software, install new
releases of the Software as the Sub-Custodian may direct. The Trust agrees not
to modify or attempt to modify the Software without the Sub-Custodian's prior
written consent. The Trust acknowledges that any modifications to the Software,
whether by the Trust or the Sub-Custodian and whether with or without the
Sub-Custodian's consent, shall become the property of the Sub-Custodian.
(e) The Sub-Custodian makes no warranties or representations
of any kind with regard to the Software or the method(s) by which the Trust may
transmit Instructions to the Sub-Custodian, express or implied, including but
not limited to any implied warranties or merchantability or fitness for a
particular purpose.
(f) Where the method for transmitting Instructions by the
Trust involves an automatic systems acknowledgment by the Sub-Custodian of its
receipt of such Instructions, then in the absence of such acknowledgment, the
Sub-Custodian shall not be liable for any failure to act pursuant to such
Instructions and the Trust may not claim that such Instructions were received by
the Sub-Custodian, and the Trust shall deliver a Certificate by some other
means.
(g) (i) The Trust agrees that where it delivers to the
Sub-Custodian Instructions hereunder, it shall be the Trust's sole
responsibility to ensure that only persons duly authorized by the Trust and the
correct number of such persons transmit such Instructions to the Sub-Custodian.
The Trust will cause all persons transmitting Instructions to the Sub-Custodian
to treat applicable use and authorization codes, passwords and authentication
keys with extreme care, and authorizes the Sub-Custodian to act in accordance
with and rely upon Instructions received by it pursuant hereto.
(ii) The Trust hereby represents, acknowledges and
agrees that it is fully informed of the protections and risks associated with
the various methods of transmitting Instructions to the Sub-Custodian and that
there may be more secure methods of transmitting instructions to the
Sub-Custodian than the method(s) selected by the Trust. The Trust hereby agrees
that the security procedures (if any) to be followed in connection with the
Trust's transmission of Instructions provide to it a commercially reasonable
degree of protection in light of its particular needs and circumstances.
(h) The Trust shall notify the Sub-Custodian of any errors,
omissions or interruptions in, or delay or unavailability of, its ability to
send Instructions as promptly as practicable, and in any event within 24 hours
after the earliest of (i) discovery thereof, (ii) the business day on which
discovery should have occurred through the exercise of reasonable care and (iii)
in the case of any error, the date of actual receipt of the earliest notice
which reflects such error, it being agreed that discovery and receipt of notice
may only occur on a business day. The
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Sub-Custodian shall, as promptly as practicable, and in any event within 24
hours after the earliest of (i) discovery thereof, (ii) the business day on
which discovery should have occurred through the exercise of reasonable care and
(iii) in the case of any error, the date of actual receipt of the earliest
notice which reflects such error, it being agreed that discovery and receipt of
notice may only occur on a business day, advise the Trust whenever the
Sub-Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Trust's ability to send Instructions.
26B. FX Transactions
(a) Whenever a Fund shall enter into an FX Transaction, the
Fund shall promptly deliver to the Sub-Custodian a Certificate or Oral
Instructions specifying with respect to such FX Transaction: (a) the Series to
which such FX Transaction is specifically allocated; (b) the type and amount of
Currency to be purchased by the Fund; (c) the type and amount of Currency to be
sold by the Fund; (d) the date on which the Currency to be purchased is to be
delivered; (e) the date on which the Currency to be sold is to be delivered; and
(f) the name of the person from whom or through whom such currencies are to be
purchased and sold. Unless otherwise instructed by a Certificate or Oral
Instructions, the Custodian shall deliver, or shall instruct a Foreign
Sub-Custodian to deliver, the Currency to be sold on the date on which such
delivery is to be made, as set forth in the Certificate, and shall receive, or
instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the
date as set forth in the Certificate.
(b) Where the Currency to be sold is to be delivered on the
same day as the Currency to be purchased, as specified in the Certificate or
Oral Instructions, the Sub-Custodian or a Foreign Sub-Custodian may arrange for
such deliveries and receipts to be made in accordance with the customs
prevailing from time to time among brokers or dealers in Currencies, and such
receipt and delivery may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
such receipts and deliveries, which responsibility and liability shall continue
until the Currency to be received by the Fund has been received in full.
(c) Any foreign exchange transaction effected by the
Sub-Custodian in connection with this Agreement may be entered with the
Sub-Custodian, any office, branch or subsidiary of The Bank of New York Company,
Inc., or any Foreign Sub-Custodian acting as principal or otherwise through
customary banking channels. The Fund may issue a standing Certificate with
respect to foreign exchange transactions but the Sub-Custodian may establish
rules or limitations concerning any foreign exchange facility made available to
the Fund. The Fund shall bear all risks of investing in Securities or holding
Currency. Without limiting the foregoing, the Fund shall bear the risks that
rules or procedures imposed by a Foreign Sub-Custodian or foreign depositories,
exchange controls, asset freezes or other laws, rules, regulations or orders
shall prohibit or impose burdens or costs on the transfer to, by or for the
account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Sub-Custodian
shall not be obligated to substitute another Currency for a Currency (including
a Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or
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procedure. Neither the Sub-Custodian nor any Foreign Sub-Custodian shall be
liable to the Fund for any loss resulting from any of the foregoing events.
27. Duties of Sub-Custodian with respect to Property of any Fund held
outside of the United States.
(a) Sub-Custodian is authorized and instructed to employ, as
sub-custodian for each Fund's Foreign Securities (as such term is defined in
paragraph (c)(1) of Rule 17f-5 under the 1940 Act) and other assets, the foreign
banking institutions and foreign securities depositories and clearing agencies
designated on Appendix C hereto ("Foreign Sub-Custodians") to carry out their
respective responsibilities in accordance with the terms of the sub-custodian
agreement between each such Foreign Sub-Custodian and Sub-Custodian (each such
agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an Officer's
Certificate, together with a certified resolution substantially in the form
attached as Appendix D of the Trust's Board of Trustees, the Trust may designate
any additional foreign sub-custodian with which Sub-Custodian has an agreement
for such entity to act as Sub-Custodian's agent, as its sub-custodian and any
such additional foreign sub-custodian shall be deemed added to Appendix C
hereto. Upon receipt of an Officer's Certificate, Sub-Custodian shall cease the
employment of any one or more Foreign Sub-Custodians for maintaining custody of
the Trust's assets and such Foreign Sub-Custodian shall be deemed deleted from
Appendix C hereto.
(b) Each Foreign Sub-Custodian Agreement shall be
substantially in the form delivered to the Trust herewith and will not be
amended in a way that materially adversely affects the Trust without the Trust's
prior written consent.
(c) Sub-Custodian shall identify on its books as belonging to
each Fund the Foreign Securities of such Fund held by each Foreign
Sub-Custodian. At the election of the Trust, it shall be entitled to be
subrogated to the rights of Sub-Custodian with respect to any claims by the
Trust or any Fund against a Foreign Sub-Custodian as a consequence of any loss,
damage, cost, expense, liability or claim sustained or incurred by the Trust or
any Fund if and to the extent that the Trust or such Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
(d) Upon request of the Trust, Sub-Custodian will, consistent
with the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable
efforts to arrange for the independent accountants of the Trust to be afforded
access to the books and records of any Foreign Sub-Custodian insofar as such
books and records relate to the performance of such Foreign Sub-Custodian under
its agreement with Sub-Custodian on behalf of the Trust.
(e) Sub-Custodian will supply to the Trust and to the
Custodian from time to time, as mutually agreed upon, statements in respect of
the securities and other assets of each Fund held by Foreign Sub-Custodians,
including but not limited to, an identification of entities having possession of
each Fund's Foreign Securities and other assets, and advices or notifications of
any transfers of Foreign Securities to or from each custodial account maintained
by a Foreign Sub-Custodian for Sub-Custodian on behalf of the Fund.
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(f) Sub-Custodian shall furnish annually to the Trust and to
the Custodian, as mutually agreed upon, information concerning the Foreign
Sub-Custodians employed by Sub-Custodian. Such information shall be similar in
kind and scope to that furnished to the Trust in connection with the Trust's
initial approval of such Foreign Sub-Custodians and, in any event, shall include
information pertaining to (i) the Foreign Sub-Custodian's financial strength,
general reputation and standing in the countries in which they are located and
their ability to provide the custodial services required, and (ii) whether the
Foreign Sub-Custodians would provide a level of safeguards for safekeeping and
custody of securities not materially different from those prevailing in the
United States. Sub-Custodian shall monitor the general operating performance of
each Foreign Sub-Custodian. Sub-Custodian agrees that it will use reasonable
care in monitoring compliance by each Foreign Sub-Custodian with the terms of
the relevant Foreign Sub-Custodian Agreement and that if it learns of any breach
of such Foreign Sub-Custodian Agreement believed by Sub-Custodian to have a
material adverse effect on the Trust or any Fund it will promptly notify the
Trust and Custodian in writing of such breach. Sub-Custodian also agrees to use
reasonable and diligent efforts to enforce its rights under the relevant Foreign
Sub-Custodian Agreement.
(g) Sub-Custodian shall transmit promptly to the Trust all
notices, reports or other written information received pertaining to the Trust's
Foreign Securities, including without limitation, notices of corporate action,
proxies and proxy solicitation materials.
(h) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the account of the
Trust or any Fund and delivery of securities maintained for the account of the
Trust or any Fund may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivery of securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such securities from such
purchaser or dealer.
(i) With respect to any losses or damages arising out of or
relating to any actions or omissions of any Foreign Sub-Custodian, the sole
responsibility and liability of Sub-Custodian shall be to take all appropriate
and reasonable action at the Trust's expense to recover such loss or damage from
the Foreign Sub-Custodian. It is expressly understood and agreed that
Sub-Custodian's sole responsibility and liability shall be limited to amounts so
recovered from the Foreign Sub-Custodian. Custodians' liability to the Trust
under this paragraph (i) shall under no circumstances exceed the liability of
Sub-Custodian assumed hereunder.
28. Concerning Custodians.
(a) (i) The Custodian shall exercise care and diligence and
act in good faith and use all commercially reasonable efforts in the performance
of its duties i. The Sub-Custodian shall exercise care and diligence and act in
good faith and use all commercially reasonable efforts in the performance of its
duties hereunder. The Custodian shall be responsible to the Trust for its own
failure, or the failure of Sub-Custodian, or the failure of any sub-custodian
that either shall appoint (other than a foreign sub-custodian referred to in
Paragraph 27) or that of
20
<PAGE>
their respective employees or agents, to perform their duties, obligations or
responsibilities in accordance with this Agreement, but only to the extent that
such failure results from acts or omissions that constitute willful misfeasance,
bad faith or negligence on the part of the Custodian or Sub-Custodian, or on the
part of their respective employees or agents, or reckless disregard of such
duties, obligations and responsibilities. The Sub-Custodian shall be responsible
to the Trust and to the Custodian for its own failure, or the failure of any
sub-custodian that it shall appoint (other than a foreign sub-custodian referred
to in Paragraph 27 or a sub-custodian appointed by the Sub-Custodian at the
specific direction of the Custodian or the Trust), or that of their respective
employees or agents, to perform their duties, obligations or responsibilities in
accordance with this Agreement, but only to the extent that such failure results
from acts or omissions that constitute willful misfeasance, bad faith or
negligence on the part of the Sub-Custodian or such sub-custodian, or on the
part of their respective employees or agents, or reckless disregard of such
duties, obligations and responsibilities.
(ii) Without limiting the generality of the foregoing
or any other provision of this Agreement, in no event shall Custodian or
Sub-Custodian be liable to the Fund or any third party nor, except as otherwise
provided in this subparagraph (a), shall Sub-Custodian be liable to Custodian,
for special, indirect or consequential damages or lost profits or loss of
business, arising under or in connection with this Agreement, even if previously
informed of the possibility of such damages and regardless of the form of
action. Custodian and/or Sub-Custodian may, with respect to questions of law
arising under any FCM Agreement, apply for and obtain the advice and opinion of
counsel to the Trust at the expense of the Trust, or of its own counsel at its
own expense, and shall be fully protected with respect to anything done or
omitted by it in good faith in conformity with such advice or opinion.
Sub-Custodian shall be liable to the Trust for any loss or damage resulting from
the use of the Book-Entry System or any Securities Depository arising by reason
of any negligence or willful misconduct on the part of Sub-Custodian or any of
its employees or agents.
(iii) Sub-Custodian's liability pursuant to the last
sentence of subparagraph (a)(i) shall include, but not be limited to,
reimbursing Custodian for court-ordered damage awards, fines, penalties, and
judicially-approved settlements (and attorney's fees and disbursements relating
thereto) arising out of or in connection with the conduct giving rise to such
liability.
(iv) If Custodian receives notice of the commencement of any
action, suit, or proceeding (an "Action"), or notice that any Action may be
commenced, for which Sub-Custodian may be liable to Custodian pursuant to this
Paragraph 28, Custodian shall give notice to Sub-Custodian of the commencement
of the Action or of the possibility that an Action will be commenced. Any
omission to notify Sub-Custodian will not relieve Sub-Custodian from any
liability which it may have under this Paragraph, except to the extent the
failure to notify Sub-Custodian prejudices the rights of Sub-Custodian.
Sub-Custodian will be entitled at its sole expense and liability, to exercise
full control of the defense, compromise or settlement of any such Action,
provided that Sub-Custodian (1) notifies Custodian in writing of Sub-Custodian's
intention to assume such defense; and (2) retains legal counsel reasonably
satisfactory to Custodian to conduct the defense of such Action. If
Sub-Custodian advises Custodian that it does not wish to exercise full control
of any defense, compromise or settlement of any Action, Sub-
21
<PAGE>
Custodian shall be responsible for the fees and expenses of counsel selected by
Custodian, in addition to any other amounts for which Sub-Custodian may be
liable pursuant to this Paragraph 28. The other person will cooperate with the
person assuming the defense, compromise or settlement of any Action in
accordance with this Paragraph in any manner that such person reasonably may
request. If Sub-Custodian so assumes the defense of any such Action, Custodian
will have the right to employ a separate counsel and to participate in (but not
control) the defense, compromise or settlement of the Action, but the fees and
expenses of such counsel will be at the expense of Custodian unless (a)
Sub-Custodian has agreed to pay such fees and expenses, (b) any relief other
than the payment of money damages is sought against Custodian, or (c) Custodian
has been advised by its counsel that there may be one or more defenses available
to it which are different from or additional to those available to Sub-Custodian
and that a conflict of interest therefore exists, and in any such case that
portion of the fees and expenses of such separate counsel that are reasonably
related to matters for which Sub-Custodian is liable pursuant to this Paragraph
will be paid by Sub-Custodian. Custodian will not settle or compromise any such
Action for which Sub-Custodian is liable pursuant to this Paragraph without the
prior written consent of Sub-Custodian, unless Sub-Custodian has failed, after
reasonable notice, to undertake control of such Action in the manner provided in
this Paragraph. Sub-Custodian will not settle or compromise any such Action in
which any relief other than the payment of money damages is sought against
Custodian without the consent of Custodian, such consent not to be unreasonably
withheld. In the event that Sub-Custodian intends to settle or compromise any
Action in which solely money damages are sought, Sub-Custodian shall give
Custodian fifteen (15) business days prior written notice.
(b) Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any obligation to inquire into, and
neither party shall be liable for:
(i) The validity of the issue of any securities
purchased, sold, or written by or for the Trust or any Fund, the legality of the
purchase, sale or writing thereof, or the propriety of the amount paid or
received therefor;
(ii) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid therefor;
(iii) The legality of the declaration or payment of
any dividend by the Trust;
(iv) The legality of any borrowing by the Trust using
securities as collateral;
(v) The legality of any loan of portfolio securities,
nor shall Custodian or Sub-Custodian be under any duty or obligation to see to
it that any cash collateral delivered to it by a broker, dealer, or financial
institution or held by it at any time as a result of such loan of portfolio
securities is adequate collateral for or against any loss Custodian,
Sub-Custodian, the Trust or any Fund might sustain as a result of such loan. The
Custodian and Sub-Custodian
22
<PAGE>
specifically, but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Trust or any Fund that the amount
of such cash collateral held by Sub-Custodian for the Trust is sufficient
collateral for the Trust, but such duty or obligation shall be the sole
responsibility of the Trust. In addition, Custodian and Sub-Custodian shall be
under no duty or obligation to see that any broker, dealer or financial
institution to which portfolio securities are lent makes payment to it of any
dividends or interest which are payable to or for the account of the Trust
during the period of such loan or at the termination of such loan, provided,
however, that Sub-Custodian shall promptly notify the Trust in the event that
such dividends or interest are not paid and received when due; or
(vi) The sufficiency or value of any amounts of money
and/or securities held in any segregated account described in Paragraph 12(a)
hereof in connection with transactions by the Funds, or whether such segregated
account provides the compliance intended to be achieved. In addition, neither
Custodian nor Sub-Custodian shall be under any duty or obligation to see that
any broker, dealer, FCM or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, FCM or Clearing Member, to see that any
payment received by Sub-Custodian from any broker, dealer, FCM or Clearing
Member is the amount the Trust is entitled to receive, or to notify the Trust or
a Fund of Sub-Custodian's receipt or non-receipt of any such payment.
(c) Neither Custodian nor Sub-Custodian shall be liable for,
or considered to be sub-custodian or custodian of, any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by Sub-Custodian on behalf of the Trust until Sub-Custodian actually
receives and collects such money directly or by the final crediting of the
account representing the Fund's interest at the Book-Entry System or a
Securities Depository.
(d) Neither Custodian nor Sub-Custodian shall have any
responsibility or be liable for ascertaining or acting upon any calls,
conversions, exchange offers, tenders, interest rate changes or similar matters
relating to securities held in a Securities Depository, unless Custodian or
Sub-Custodian shall have actually received timely notice from such Securities
Depository. In no event shall Custodian or Sub-Custodian have any responsibility
or liability for the failure of any Securities Depository to collect, or for the
late collection or late crediting by a Securities Depository of any amount
payable upon securities deposited in a Securities Depository which may mature or
be redeemed, retired, called or otherwise become payable. Upon receipt of
Written Instructions from the Trust of an overdue amount on securities held in a
Securities Depository Sub-Custodian shall make a claim against a Securities
Depository on behalf of the Trust, except that neither Custodian nor
Sub-Custodian shall be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any securities held by a Securities
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
(e) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount due to the
Trust from a transfer agent of the Trust nor to take any action to effect
payment or distribution by the transfer agent of the Trust of
23
<PAGE>
any amount paid by Sub-Custodian to the transfer agent of the Trust in
accordance with this Agreement.
(f) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation to take action to effect collection of any amount, if the
securities upon which such amount is payable are in default, or if payment is
refused after due demand or presentation, unless and until (i) it shall be
directed to take such action by Written Instructions and (ii) it shall be
assured to its reasonable satisfaction of reimbursement of its costs and
expenses in connection with any such action.
(g) Custodian and Sub-Custodian may in addition to the
employment of Foreign Sub-Custodians pursuant to Paragraphs 7 and 27, hereof
appoint one or more banking institutions as Depository or Depositories, as a
sub-custodian or as sub-custodians, or as a co-custodian or as co-custodians,
including, but not limited to, banking institutions located in foreign
countries, of securities and moneys at any time owned by the Fund, upon such
terms and conditions as may be approved in an Officer's Certificate or contained
in an agreement executed by Sub-Custodian, Custodian and the Trust and the
appointed institution.
(h) Neither Custodian nor Sub-Custodian shall be under any
duty or obligation (i) to ascertain whether any securities at any time delivered
to, or held by it or by any Foreign Sub-Custodian, for the account of the Trust
and specifically allocated to a Fund are such as properly may be held by the
Trust or such Fund under the provisions of its Prospectus, or (ii) to ascertain
whether any transactions by the Fund, whether or not involving Sub-Custodian,
are such transactions as may properly be engaged in by the Fund.
(i) Sub-Custodian shall charge its compensation and any
expenses with respect to the Funds of the Trust incurred by Sub-Custodian in the
performance of its duties under this Agreement only against the money of the
Fund or Funds of the Trust from which such compensation or expenses is actually
due and payable, and under no circumstances shall any compensation or expenses
due to the Sub-Custodian be considered to be a joint, or joint and several,
obligation of the Funds of the Trust. To the extent that Sub-Custodian is
entitled to recover from the Trust any loss, damage, liability or expense
(including counsel fees) under this Agreement, Sub-Custodian shall charge the
amount due in respect of such loss, damage, liability or expense (including
counsel fees) only against the money held by it for the Fund or Funds of the
Trust that is/are identified by the Trust in an Officer's Certificate, unless
and until the Trust instructs Sub-Custodian by an Officer's Certificate to
charge against money held by it for the account of a Fund such Fund's pro rata
share (based on such Fund's net asset value at the time of the charge in
proportion to the aggregate net asset value of all Funds at that time) of the
amount of such loss, damage, liability or expense (including counsel fees).
(j) Custodian and Sub-Custodian shall be entitled to rely upon
any Officer's Certificate, Written Instructions, notice or other instrument in
writing received by Custodian or Sub-Custodian and reasonably believed by
Custodian or Sub-Custodian, as the case may be, to be an Officer's Certificate
or Written Instructions. Custodian and Sub-Custodian shall be entitled to rely
upon any Oral Instructions actually received by Custodian or Sub-Custodian. The
Trust agrees to forward to Custodian or Sub-Custodian Written Instructions
confirming such Oral
24
<PAGE>
Instructions in such manner so that such Written Instructions are received by
Sub-Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are received by Sub-Custodian. The Trust agrees that the fact that such
confirming instructions are not received, or that contrary instructions are
received, by Custodian or Sub-Custodian shall in no way affect the validity of
the transactions or enforceability of the transactions hereby authorized by the
Trust. The Trust agrees that neither Custodian nor Sub-Custodian shall incur any
liability to the Trust in acting upon Oral Instructions given to Custodian or
Sub-Custodian hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Authorized Person.
(k) Each of Custodian and Sub-Custodian shall be entitled to
rely upon any instrument, instruction or notice received by it and reasonably
believed by it to be given in accordance with the terms and conditions of any
FCM Agreement. Without limiting the generality of the foregoing, neither
Custodian nor Sub-Custodian shall be under any duty to inquire into, and neither
Custodian nor Sub-Custodian shall be liable for, the accuracy of any statements
or representations contained in any such instrument or other notice including,
without limitation, any specification of any amount to be paid to a broker,
dealer, futures commission merchant or clearing member.
(l) Sub-Custodian shall provide the Trust with any report
obtained by Sub-Custodian on the system of internal accounting control of the
Book-Entry System, any Securities Depository utilized hereunder the Depository
or the Options Clearing Corporation, and with such reports on its own systems of
internal accounting control as the Trust may reasonably request from time to
time.
(m) Subject to the foregoing provisions of this Agreement,
including, without limitation, those contained in Paragraph 27 hereof,
Sub-Custodian may deliver and receive securities, and receipts with respect to
such securities, and arrange for payments to be made and received by
Sub-Custodian in accordance with the customs prevailing from time to time among
brokers or dealers in such securities. When Sub-Custodian is instructed to
deliver securities against payment, delivery of such securities and receipt of
payment therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
Sub-Custodian's delivery of securities pursuant to proper instructions of the
Fund, which responsibility and liability shall continue until final payment in
full has been received by Sub-Custodian.
(n) Neither Custodian nor Sub-Custodian shall have any duties
or responsibilities whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation shall be
implied in this Agreement against Custodian or Sub-Custodian.
(o) To the extent Custodian shall have discharged its
obligations to the Trust under subparagraph (a)(i) of this paragraph 28 on
account of conduct of Sub-Custodian, its agents or employees, Custodian shall be
subrogated to all rights of the Trust with respect to such conduct.
25
<PAGE>
29. Termination. Any of the parties hereto may terminate this Agreement
by giving to the other parties a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. Upon the date set forth in such notice this Agreement
shall terminate, and Sub-Custodian shall on that date deliver directly to the
Custodian or a successor sub-custodian designated by the Trust or Custodian all
securities and moneys then owned by the Trust and held by Sub-Custodian, after
deducting all fees, expenses and other amounts for the payment or reimbursement
of which it shall then be entitled; provided, however, that transaction fees and
expenses payable by the Trust in connection with a deconversion to a successor
sub-custodian shall be limited to Sub-Custodian's actual direct cost.
30. Notices. All notices and other communications (collectively
referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in
writing or by confirm in telegram, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to Sub-Custodian, at Sub-Custodian's address,
90 Washington Street, (22nd Floor), New York, New York 10286, Attention: Frank
Ajosa; (b) if to Custodian, at Custodian's address, NationsBank, 101 South Tryon
Street, NC1-002-33-31, Charlotte, NC 28255, Attention: James Jones; (c) if to
the Trust, at the address of the Trust, 111 Center Street, Little Rock, Arkansas
72201, Attention: Richard H. Blank, Jr., Secretary; or (d) if to none of the
foregoing, at such other address as shall have been notified to the sender of
any such Notice or other communication. Notice shall be deemed to have been
given when actually received by the other party. All postage, cable, telegram,
telex and facsimile sending device charges arising from the sending of a Notice
hereunder shall be paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as it deems necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Miscellaneous.
(a) The Trust agrees that Sub-Custodian may be a counterparty
in any purchase or sale of foreign currency by or for the Trust on a spot or
forward basis, and on any option to buy or sell foreign currency.
(b) This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors.
26
<PAGE>
34. The names "Nations Fund" and "Trustees of Nations Fund" refer
respectively to the Trust created and the Trustees, as Trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated January 22, 1990, which is hereby referred to and a copy of which is
on file at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"Nations Fund" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made
27
<PAGE>
not individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, or representatives of the Trust personally, but bind
only the Trust Property, and all persons dealing with any class of Shares of the
Trust Property, and all persons dealing with any class of Shares of the Trust
must look solely to the Trust Property belonging to such class for the
enforcement of any claims against the Trust.
35. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the day and
year first above written.
THE BANK OF NEW YORK NATIONSBANK OF TEXAS, N.A.
By: /s/ Stephen E. Grunston By: /s/ John R. Glover
Stephen E. Grunston John R. Glover
Vice-President Senior Vice-President
NATIONS INSTITUTIONAL RESERVES
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
29
<PAGE>
SCHEDULE A
AUTHORIZED PERSONS FOR
ORAL AND WRITTEN INSTRUCTIONS
In addition to the Trust's Officers, any one of the following persons
is authorized as an "Authorized Person" to give "Oral Instructions" on behalf of
the Trust to the Custodian or Sub-Custodian pursuant to the Mutual Fund Custody
and Sub-Custody Agreement among the Trust, NationsBank of Texas, N.A. and The
Bank of New York, provided that no person shall be authorized or permitted to
withdraw Trust investments or assets upon his/her mere receipt (unless otherwise
authorized with respect to a specific Fund or Funds pursuant to a separate vote
approved by the Board of Trustees):
NATIONS CASH RESERVES, NATIONS TREASURY RESERVES
AND NATIONS GOVERNMENT RESERVES
Melinda Crosby
Sandra Duck
Bradford R. Ownsby
Martha Sherman
John Teague; and
NATIONS MUNICIPAL RESERVES
Melinda Crosby
Sandra Duck
John Kohl
Bradford R. Ownsby
Martha Sherman
In addition to the Trust's Officers, any two of the individuals named
above be is authorized as an "Authorized Person" to give "Written Instructions"
on behalf of the Trust to the Custodian, provided, however, that "Written
Instructions" given in connection with the issuance of checks and other drafts
in payment of the Trust's operating expenses as provided therein must not be
given except upon prior written authorization of the Trust's President,
Treasurer or Assistant Treasurer; and provided further that no one or more
persons shall be authorized or permitted to withdraw Trust investments or assets
upon his/her or their mere receipt (unless otherwise authorized with respect to
a specific Fund or Funds pursuant to a separate vote approved by the Board of
Trustees).
30
<PAGE>
SCHEDULE B
OFFICERS OF NATIONS INSTITUTIONAL RESERVES
OFFICER POSITION
A. Max Walker President and
Chairman of the Board
Richard H. Blank, Jr. Secretary
Michael W. Nolte Assistant Secretary
Louise P. Newcomb Assistant Secretary
James E. Banks Assistant Secretary
Richard H. Rose Treasurer
Joseph C. Viselli Assistant Treasurer
Susan Manter Assistant Treasurer
31
<PAGE>
SCHEDULE I
The Mutual Fund Custody and Sub-Custody Agreement among Nations
Institutional Reserves, Custodian and Sub-Custodian, applies to the following
funds of the Trust:
Nations Cash Reserves Fund
Nations Treasury Reserves Fund
Nations Government Reserves Fund
Nations Municipal Reserves Fund
32
<PAGE>
APPENDIX A
I, , a Vice President with THE BANK OF NEW
YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
33
<PAGE>
APPENDIX B
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Institutional Reserves, a
Massachusetts business trust (the "Trust"), further certifies that the following
resolutions were adopted by the Board of Trustees of the Trust at a meeting duly
held on October 11-12, 1996, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
TRUST VOTE
VOTED, that the Mutual Fund Custody and Sub-Custody Agreement
for each Fund as presented to this meeting be, and it hereby is,
approved, and that the appropriate Officers of the Trust be, and each
hereby is, authorized and directed to execute and deliver the Mutual
Fund Custody and Sub-Custody Agreement on behalf of the Trust, in that
form or with such changes as that Officer, with the advice of counsel,
deems necessary or desirable.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 18th day of
October 1996.
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
34
<PAGE>
APPENDIX C
LIST OF FOREIGN SUB-CUSTODIANS
SCHEDULE OF FOREIGN SUB-CUSTODIANS
<TABLE>
<CAPTION>
- --------------------------------- -----------------------------------------------------
<S> <C>
COUNTRY ELIGIBLE FOREIGN CUSTODIAN
- --------------------------------- -----------------------------------------------------
Argentina The Bank of Boston, Buenos Aires
- --------------------------------- -----------------------------------------------------
Australia ANZ, Melbourne
- --------------------------------- -----------------------------------------------------
Austria Creditanstalt, Vienna
- --------------------------------- -----------------------------------------------------
Bangladesh Standard Chartered Bank, Dhaka
- --------------------------------- -----------------------------------------------------
Belgium BBL, Brussels
- --------------------------------- -----------------------------------------------------
Botswana Stanbic Bank, Botswana
- --------------------------------- -----------------------------------------------------
Brazil The Bank of Boston, Sao Paolo
- --------------------------------- -----------------------------------------------------
Canada Royal Bank of Canada
- --------------------------------- -----------------------------------------------------
Chile The Bank of Boston, Santiago
- --------------------------------- -----------------------------------------------------
China (Shanghai) Standard Chartered, Shanghai
- --------------------------------- -----------------------------------------------------
China (Shenzhen) Standard Chartered, Shenzhen
- --------------------------------- -----------------------------------------------------
Colombia Cititrust, Bogota
- --------------------------------- -----------------------------------------------------
Czech Republic CSOB, Prague
- --------------------------------- -----------------------------------------------------
Denmark Den Danske Bank, Copenhagen
- --------------------------------- -----------------------------------------------------
Ecuador Citibank, Quito
- --------------------------------- -----------------------------------------------------
Egypt Citibank, Cairo
- --------------------------------- -----------------------------------------------------
Euromarket CEDEL, Luxembourg
- --------------------------------- -----------------------------------------------------
Finland Merita Bank, Helsinki
- --------------------------------- -----------------------------------------------------
France Banque Paribas, Paris
- --------------------------------- -----------------------------------------------------
Germany Dresdner Bank AG, Frankfurt
- --------------------------------- -----------------------------------------------------
Ghana Merchant Bank Ghana, Accra
- --------------------------------- -----------------------------------------------------
Greece National Bank of Greece, Athens
- --------------------------------- -----------------------------------------------------
Hong Kong HSBC, Hong Kong
- --------------------------------- -----------------------------------------------------
Hungary Citibank, Budapest
- --------------------------------- -----------------------------------------------------
India HSBC, Bombay
- --------------------------------- -----------------------------------------------------
Indonesia HSBC, Jakarta
- --------------------------------- -----------------------------------------------------
Ireland Allied Irish Banks, plc.
- --------------------------------- -----------------------------------------------------
Israel Bank Leumi, Tel Aviv
- --------------------------------- -----------------------------------------------------
Italy Banca Commerciale Italiana, Milan
- --------------------------------- -----------------------------------------------------
Japan Fuji Bank, Kabutochu, Tokyo
- --------------------------------- -----------------------------------------------------
Jordon British Bank of Middle East, Amman
- --------------------------------- -----------------------------------------------------
Kenya Stanbic Bank Kenya
- --------------------------------- -----------------------------------------------------
Korea Seoulbank, Seoul
- --------------------------------- -----------------------------------------------------
Luxembourg Banque Int'l a Luxembourg
- --------------------------------- -----------------------------------------------------
Malaysia Hong Kong Bank Malaysia Berhad, Kuala Lumpur
35
<PAGE>
- --------------------------------- -----------------------------------------------------
Mexico Banamex, Mexico City
- --------------------------------- -----------------------------------------------------
Morocco Banque Commerciale du Maroc, Casablanca
- --------------------------------- -----------------------------------------------------
Namibia Stanbic Bank Namibia
- --------------------------------- -----------------------------------------------------
Netherlands Mees Pierson, Amsterdam
- --------------------------------- -----------------------------------------------------
New Zealand ANZ, Wellington
- --------------------------------- -----------------------------------------------------
Nigeria Stanbic Bank Nigeria
- --------------------------------- -----------------------------------------------------
Norway Den norske Bank, Oslo
- --------------------------------- -----------------------------------------------------
Pakistan Standard Chartered, Karachi
- --------------------------------- -----------------------------------------------------
Peru Citibank, Lima
- --------------------------------- -----------------------------------------------------
Philippines HSBC, Manila
- --------------------------------- -----------------------------------------------------
Poland Bank Handlowy, Warsaw
- --------------------------------- -----------------------------------------------------
Portugal Banco Comercial Portugues, Lisbon
- --------------------------------- -----------------------------------------------------
Singapore United Overseas Singapore
- --------------------------------- -----------------------------------------------------
Slovak Republic CSOB, Bratislava
- --------------------------------- -----------------------------------------------------
South Africa Standard Bank of South Africa, Johannesburg
- --------------------------------- -----------------------------------------------------
Spain Banco Bilbao Vizcaya, Madrid
- --------------------------------- -----------------------------------------------------
Sri Lanka Standard Chartered, Colombo
- --------------------------------- -----------------------------------------------------
Swaziland Stanbic Bank Swaziland
- --------------------------------- -----------------------------------------------------
Sweden Skandinaviska Enskilda Banken, Stockholm
- --------------------------------- -----------------------------------------------------
Switzerland Bank Leu, Zurich
- --------------------------------- -----------------------------------------------------
Taiwan HSBC, Taipei
- --------------------------------- -----------------------------------------------------
Thailand Bangkok Bank, Bangkok
- --------------------------------- -----------------------------------------------------
Turkey CITIBANK, Istanbul
- --------------------------------- -----------------------------------------------------
United Kingdom The Bank of New York, London
- --------------------------------- -----------------------------------------------------
United States The Bank of New York, New York
- --------------------------------- -----------------------------------------------------
Uruguay The Bank of Boston, Montevideo
- --------------------------------- -----------------------------------------------------
Venezuela Citibank, Caracas
- --------------------------------- -----------------------------------------------------
Zambia Stanbic Bank Zambia
- --------------------------------- -----------------------------------------------------
Zimbabwe Stanbic Bank Zimbabwe, Harare
- --------------------------------- -----------------------------------------------------
</TABLE>
36
<PAGE>
APPENDIX D
The undersigned, Richard H. Blank, Jr., hereby certifies that he is the
duly elected and acting Secretary of Nations Institutional Reserves, a
Massachusetts business trust (the "Trust"), further certifies that the following
resolutions were adopted by the Board of Trustees of the Trust at a meeting duly
held on October 11-12, 1996, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
TRUST VOTES
VOTED, that the sub-custody and maintenance of securities and
other assets owned by the Funds of the Trust in countries other than
the United States is necessary, appropriate and desirable for the
efficient operation of the Funds; and
FURTHER VOTED, that pursuant to Rule 17f-5 under the 1940 Act,
BONY, as custodian for the Funds of the Trust, be, and it hereby is,
authorized and directed to use the foreign sub-custodians and
depositories in the indicated countries listed on the attached
Schedule, each such foreign sub-custodian and depository being an
eligible foreign custodian under Rule 17f-5 or being authorized to act
in such capacity pursuant to exemptive relief granted by the SEC;
FURTHER VOTED, that the Sub-Custodian Agreements between BONY
and its network banks, providing for, among other things, the manner
in which BONY will maintain the Funds' foreign securities and other
assets with eligible foreign sub-custodians be, and they hereby are,
approved;
FURTHER VOTED, that the appropriate Officers of the Trust be,
and each hereby is, authorized to execute such documents and to take
such actions as may be necessary or appropriate to carry out the
purposes and intent of the preceding resolutions, the execution and
delivery of such documents or taking of such action to be conclusive
evidence of the Board of Trustees' approval;
FURTHER VOTED, that the attached Schedule of approved foreign
custodians may be amended from time to time with the approval of a
majority of the Board of Trustees; and
FURTHER VOTED, that BONY is permitted to use the CREST system
for book-entry settlement of United Kingdom and Irish securities
37
<PAGE>
transactions on behalf of the Funds of the Trust, including with
respect to eligible Fund assets, if any, currently held in the vaults
of The Bank of New York, London and Allied Irish Banks, plc.
IN WITNESS WHEREOF, I hereunto set my hand as of the 18th day of
October 1996.
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
Secretary
38
<PAGE>
APPENDIX E
FEE SCHEDULE FOR NATIONSBANK OF TEXAS, N.A.
The funds of Nations Fund Trust, Nations Fund, Inc. (except Nations
International Equity Fund) and Nations Institutional Reserves, and each of
Hatteras Income Securities, Inc. and Nations Balanced Target Maturity Fund, Inc.
("Funds" and each a "Fund") shall pay to the Custodian on a pro rata basis, with
each Fund's pro rata share to be determined based on the number of Funds covered
by this Agreement, the following fees:
1. $300,000 per annum, to be paid monthly in payments of $25,000, for
custodian services for up to and including fifty (50) Funds; and
2. $6,000 per annum, to be paid in equal monthly payments, for
custodian services for each additional Fund above fifty (50) Funds.
The Funds covered under this Appendix are set forth below.
NATIONS FUND TRUST:
1. Nations Government Money Market Fund
2. Nations Tax Exempt Fund
3. Nations Value Fund
4. Nations Capital Growth Fund
5. Nations Emerging Growth Fund
6. Nations Equity Index Fund
7. Nations Managed Index Fund
8. Nations Managed SmallCap Index Fund
9. Nations Managed Value Index Fund
10. Nations Managed SmallCap Value Index Fund
11. Nations Disciplined Equity Fund
12. Nations Balanced Assets Fund
13. Nations Short-Intermediate Government Fund
14. Nations Short-Term Income Fund
15. Nations Diversified Income Fund
16. Nations Strategic Fixed Income Fund
17. Nations Municipal Income Fund
18. Nations Short-Term Municipal Income Fund
19. Nations Intermediate Municipal Bond Fund
20. Nations Florida Intermediate Municipal Bond Fund
21. Nations Florida Municipal Bond Fund
22. Nations Georgia Intermediate Municipal Bond Fund
23. Nations Georgia Municipal Bond Fund
24. Nations Maryland Intermediate Municipal Bond Fund
25. Nations Maryland Municipal Bond Fund
39
<PAGE>
26. Nations North Carolina Intermediate Municipal Bond Fund
27. Nations North Carolina Municipal Bond Fund
28. Nations South Carolina Intermediate Municipal Bond Fund
29. Nations South Carolina Municipal Bond Fund
30. Nations Tennessee Intermediate Municipal Bond Fund
31. Nations Tennessee Municipal Bond Fund
32. Nations Texas Intermediate Municipal Bond Fund
33. Nations Texas Municipal Bond Fund
34. Nations Virginia Intermediate Municipal Bond Fund
35. Nations Virginia Municipal Bond Fund
NATIONS FUND, INC.:
36. Nations Prime Fund
37. Nations Treasury Fund
38. Nations Equity Income Fund
39. Nations Government Securities Fund
NATIONS INSTITUTIONAL RESERVES:
40. Nations Cash Reserves Fund
41. Nations Treasury Reserves Fund
42. Nations Government Reserves Fund
43. Nations Municipal Reserves Fund
44. HATTERAS INCOME SECURITIES, INC.
45. NATIONS BALANCED TARGET MATURITY FUND, INC.
Dated: October 18, 1996
Amended: June 4, 1997
40
[MORRISON & FOERSTER LLP LETTERHEAD]
August 27, 1997
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
Re: Units of Beneficial Interest in the
Funds of The Capitol Mutual Funds
(d/b/a Nations Institutional Reserves)
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 20 and Amendment No. 21
to the Registration Statement on Form N-1A (SEC File Nos. 33-33144;
811-6030) (the "Registration Statement") of The Capitol Mutual Funds (the
"Trust") relating to the registration of an indefinite number of units of
Beneficial Interest in Funds of the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments,
certificates of public officials and of the Trust, made such inquiries of
the Trust, and examined such questions of law as we have deemed necessary
for the purpose of rendering the opinion set forth herein. We have assumed
the genuineness of all signatures and the authenticity of all items
submitted to us as originals and the conformity with originals of all items
submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance and sale of the Shares by the Trust have been duly and
validly authorized by all appropriate action, and assuming delivery by sale or
in accord with the dividend reinvestment plan of each of the Trust's portfolios
in accordance with the
<PAGE>
The Capitol Mutual Funds
August 27, 1997
Page 2
description set forth in the Registration Statement, the Shares will be validly
issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our Firm under the heading "Counsel" in the Statement of Additional
Information, and the description of advice rendered by our Firm under the
heading "How The Funds Are Managed" in the Prospectuses, which are included as
part of the Registration Statement.
Very truly yours,
/s/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 20 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated June 18, 1997,
relating to the financial statements and financial highlights appearing in the
April 30, 1997 Annual Report to Shareholders of Nations Institutional Reserves,
which is also incorporated by reference into the Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"How The Funds Are Managed - Other Service Providers" in the Prospectuses and
under the heading "Experts and Financial Information" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
August 25, 1997
