NATIONS INSTITUTIONAL RESERVES, 485APOS, 1998-01-22

NATIONS INSTITUTIONAL RESERVES
485APOS, 1998-01-22

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As filed with the Securities and Exchange Commission
on January 22, 1998
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. 21 [ X ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 22 [ 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):
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[ ] Immediately upon filing pursuant to Rule 485(b); or [ ] on (date) pursuant to Rule 485(b), or

[ ] 60 days after filing pursuant to Rule 485(a), or [ ] on (date) pursuant to Rule 485(a)(1)

[ X ] 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.

<PAGE>

EXPLANATORY NOTE

This Post-Effective Amendment No. 21 to the Registration Statement of The
Capitol Mutual Funds (d/b/a/ Nations Institutional Reserves) (the "Trust") is
being filed in order to add a new Fund to the Trust: Nations Money Market
Reserves. The Fund will have four classes of shares: Capital, Liquidity, Adviser
and Market.

<PAGE>

THE CAPITOL MUTUAL FUNDS
D/B/A/ NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
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<CAPTION>

PART A
Item No. Prospectus
- ------- ----------
<S> <C> <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

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* Not Applicable

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<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.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.

PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED JANUARY 23, 1998 Nations Money
Market Reserves

CAPITAL CLASS
SHARES
Prospectus APRIL , 1998

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 NATIONS MONEY MARKET RESERVES (the
"Fund").

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 THE FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

This Prospectus sets forth concisely the
information about the 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 April , 1998 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 Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Fund. 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 FUND 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 For Fund information call:
AND SERVES AS THE DISTRIBUTOR FOR THE TRUST. 1-800-626-2275
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE or write:
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR Nations Institutional
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY Reserves
STATE SECURITIES COMMISSION PASSED UPON THE c/o Stephens Inc.
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY One NationsBank Plaza
REPRESENTATION TO THE CONTRARY IS A CRIMINAL 33rd Floor
OFFENSE. Charlotte, NC 28255

(Nations Fund logo appears here.)

<PAGE>
Table Of Contents

Prospectus Summary 3
About The
Fund ---------------------------------------------------

Expenses Summary 4

---------------------------------------------------

Objective 5
---------------------------------------------------

How The Objective Is Pursued 5
---------------------------------------------------

General Investment Policies 6
---------------------------------------------------

How Performance Is Shown 8
---------------------------------------------------

How The Fund Is Managed 8
---------------------------------------------------

Organization And History 11
---------------------------------------------------

How To Buy Shares 12
About Your
Investment ---------------------------------------------------

How To Redeem Shares 13

---------------------------------------------------

How To Exchange Shares 14
---------------------------------------------------

How The Fund Values Its Shares 14
---------------------------------------------------

How Dividends And Distributions Are Made; Tax
Information 15
---------------------------------------------------

Appendix A -- Portfolio Securities 16
---------------------------------------------------

Appendix B -- Description Of Ratings 23
---------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

<PAGE>
About The Fund

Prospectus Summary

(Bullet) TYPE OF COMPANY: Open-end management investment company.

(Bullet) INVESTMENT OBJECTIVE AND POLICIES:

(Bullet) Nations Money Market Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.

(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 62
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."

(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Money Market Reserves declares
dividends daily and pays them monthly. The Fund's net realized capital
gains, including net short-term capital gains are distributed at least
annually.

(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in the Fund are not insured against loss of principal. For
a discussion of these and other factors, see "How The Objective Is
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."

(Bullet) MINIMUM PURCHASE: The minimum initial investment in Capital Class
Shares is $1,000,000.

<PAGE>

Expenses Summary

Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes operating expenses for the Capital Class Shares of
the Fund. 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 Fund over
specified periods.

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

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Nations
Money Market
Reserves

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.

<S> <C> <C>
1 Year 3 Years

Nations Money Market Reserves $2 $6
</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" figure contained in the above table is based on
estimated amounts and reflects anticipated fee waivers 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 Capital Class
Shares. The Trust also offers the Liquidity Class, the Adviser Class and the
Market Class Shares of the

<PAGE>
Fund which are subject to the same expenses plus additional distribution and/or
shareholder servicing fees. For a more complete description of the Fund's
operating expenses, see "How The Fund Is Managed."

Absent waivers, the "Advisory Fees", "Other Expenses" and "Total Operating
Expenses" for Nations Money Market Reserves would be .30%, .15% and .45% of
average net assets, respectively.

Objective

The 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 MONEY MARKET RESERVES: Nations Money Market Reserves' investment
objective is to preserve principal value and maintain a high degree of liquidity
while providing current income.

Although the Adviser seeks to achieve the investment objective of the Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Fund are not insured against loss of principal.

How The Objective Is Pursued

NATIONS MONEY MARKET RESERVES

In pursuing its investment objective, the Fund invests only in first tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The term "First Tier
Securities" has a technical definition given by the SEC, but generally refers to
securities that, in the Adviser's view, present minimal credit risks and have
the highest short-term debt rating at the time of purchase by one (if rated by
only one) or more nationally recognized statistical rating organizations
("NRSROs"). The six NRSROs are Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's Investor Services ("Moody's").

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; and (v) repurchase agreements and reverse repurchase
agreements involving any of the foregoing obligations. The Fund also may invest
in guaranteed investment contracts and in securities issued by other investment
companies, consistent with its

<PAGE>
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 will also 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 lend its portfolio securities to qualified
institutional investors, consistent with its investment objective and policies.

The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than 25% of the Fund's assets in such obligations.

For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash. For more information concerning these instruments, see "Appendix A."

General Investment Policies

For a description of the Fund's permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
The Fund 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 the 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 the Fund.

INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to the Fund without the affirmative
vote of the holders of a majority of the Fund's outstanding shares. Other
investment limitations that cannot be changed without such a vote of
shareholders are described in the Fund's SAI.

<PAGE>
The 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 the Fund's assets.

2. Make loans, except that (a) the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) the 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) the Fund 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.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Fund to value
its investments on the basis of amortized cost, (see "How The Fund Values Its
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the 1940 Act, some of which are described below. 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,
no more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that the Fund's investment restrictions
or permissible investments are more restrictive than the requirements of Rule
2a-7, the Fund's own restrictions will govern.

FUNDAMENTAL POLICIES: The investment objective of the Fund and the investment
limitations described above are fundamental policies of the Fund. It is also a
fundamental policy of the Fund to seek to maintain a constant net asset value of
$1.00 per share. There is no assurance that the Fund will be able to maintain a
constant net asset value of $1.00 per share.

Fundamental policies cannot be changed with respect to the Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of the
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.

<PAGE>

How Performance Is Shown

From time to time the Fund may advertise the "yield" and "effective 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 the Fund refers to the income generated by
an investment in the Fund over a stated seven-day period. This income is then
"annualized". That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.

Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Fund 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 Fund offers 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 Fund's
shares. The Fund's annual report contains additional performance information and
is available upon request without charge from the Fund's distributor or an
investor's agent or by calling Nations Funds at the toll-free number indicated
on the cover of this Prospectus.

How The Fund Is Managed

The business and affairs of Nations 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 Fund. 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 Fund. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management

<PAGE>
services to individuals, corporations and institutions.

Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. 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, the 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 the 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 the
Fund.

NBAI, TradeStreet and the administrator and the co-administrator of the Fund
have voluntarily agreed to waive their fees (and reimburse the Fund for certain
expenses) in order to limit the total annualized operating expenses of the
Capital Class Shares of the Fund (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.

Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Money Market Reserves.
She has been Portfolio Manager for Nations Money Market Reserves since its
inception. 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.

<PAGE>
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 Fund, 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 Fund.

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 Fund
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Fund, 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
Fund. 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 the Fund's average daily net
assets.

Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. 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 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 the Fund 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 the 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 the Fund, as well as certain expenses
attributable to Capital Class Shares, are deducted from accrued income before
dividends are declared. The Fund's 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;

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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., Nations Annuity Trust and the
Trust. The Nations Funds Family currently has more than 62 distinct investment
portfolios and total assets in excess of $30 billion. The Declaration of Trust
permits the Trust to offer separate series of units of beneficial interest
("shares") and different classes of each series. The Fund is a series of the
Trust. Except for differences between classes of the Fund pertaining to
distribution and shareholder servicing arrangements, each share of the Fund
represents an equal proportionate interest in the Fund. This Prospectus relates
to the Capital Class Shares of the Trust's Nations Money Market Reserves.

In addition to the Capital Class Shares, the Fund also offers 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 Fund
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 the Fund. Information regarding the
Liquidity Class, Adviser Class and Market Class Shares of the Fund is contained
in separate prospectuses that may be obtained from the Trust's distributor. To
obtain additional information regarding the Fund's

<PAGE>
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
order must be received by Stephens or the Transfer Agent by 3:00 p.m., Eastern
time. A purchase order received after such time will not be accepted; notice
thereof will be given to the 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 Fund 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 Fund may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.

<PAGE>
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, 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 the Fund. Redemption orders will not be accepted by Stephens or
the Transfer Agent after 3:00 p.m., Eastern time, for execution on that Business
Day. 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 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 the 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.

<PAGE>

How To Exchange Shares

The exchange feature enables a shareholder of Capital Class Shares of the 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.

How The Fund Values Its Shares

The net asset value of a share of each class of shares in the Fund 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, 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, Veterans Day, Thanksgiving Day and Christmas Day.

The assets of the Fund are valued based upon the amortized cost method. Although
Nations Funds seeks to maintain the net asset value per share of the Fund at
$1.00, there can be no assurance that its net asset value per share will not
vary.

<PAGE>

How Dividends And Distributions Are
Made; Tax Information

DIVIDENDS AND DISTRIBUTIONS: The net income of the Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time, on the day of declaration. Dividends are paid by the 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 the 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 the 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 the 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 Money Market 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 the Fund is exempt from income tax in their particular states.

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 Fund and its
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.

<PAGE>

Appendix A -- Portfolio Securities

The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
more information concerning such investments.

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 Money Market 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 Money Market Reserves may invest up to 100% of its assets in obligations
issued by banks. Nations Money Market 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

<PAGE>
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 the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Fund may borrow
money from banks for temporary purposes in amounts of up to one-third of its
total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, the Fund may borrow
primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.

Reverse repurchase agreements may be considered to be borrowings. When the Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Fund may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that the Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.

At the time the Fund enters into a reverse repurchase agreement, it 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 Fund
only enters 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 the Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, the Fund is required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, the Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best 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.

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 Money Market 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

<PAGE>
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 the Fund in commercial paper will consist of issues rated in a
manner consistent with the Fund's investment policies and objective. In
addition, the 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 the 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 the 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 the Fund may be subject to greater
fluctuation in price than securities of domestic companies.

The Fund 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 Fund 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.

<PAGE>
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, the Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to the 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.

The 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, the 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 Fund will not hold more
than 10% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and GICs that do not provide for
payment to the Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities. In addition,
interests in privately arranged loans acquired by Nations Money Market Reserves
may be subject to this limitation.

If otherwise consistent with its investment objectives and policies, the Fund
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 the Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by the Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of the 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, the Fund 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 the
Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
The Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. The Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.

The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of the Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund antic-

<PAGE>
ipated purchasing at a later date rather than for speculative purposes. The Fund
will not sell interest rate caps or floors that it does not own.

MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.

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 the 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 the 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 the 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
the 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 the Fund's
limitation on the purchase of illiquid securities.

In addition, the Fund may acquire "stand-by commitments" from banks or
broker/dealers with respect to Municipal Securities held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Fund's option
specified Municipal Securities at a specified price. The Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.

<PAGE>
market interest rates. The Fund 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 the 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 Fund will limit its put transactions to institutions
which the Adviser believes present minimal credit risk, pursuant to guidelines
adopted by the Board of Trustees.

Although the Fund does not presently intend to do so on a regular basis, it 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 the
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, the 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: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations'
Non-Money Market Funds may purchase shares of Nations' Money Market Funds.

REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.

SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be 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 the 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.

<PAGE>
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.

U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association, some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.

The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.

VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. 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.

<PAGE>

Appendix B -- Description Of Ratings

The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:

AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.

AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.

A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.

To provide more detailed indications of credit quality, the AA 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.

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.

<PAGE>
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
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

<PAGE>
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.

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.

<PAGE>
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.

The following summarizes the two highest short-term debt ratings used by IBCA:

A1+ -- Where issues possess a particularly strong credit feature.

A1 -- Obligations supported by the highest capacity for timely repayment.

<PAGE>

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED JANUARY 23, 1998
Nations Money
Market Reserves
Prospectus
LIQUIDITY CLASS
Nations Institutional Reserves (formerly known as SHARES
The Capitol Mutual Funds) (the "Trust") is an open-end APRIL , 1998
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 NATIONS MONEY MARKET RESERVES (the
"Fund").

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 THE FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

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 FUND 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 For Fund information call:
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR 1-800-626-2275
AND SERVES AS THE DISTRIBUTOR FOR THE TRUST.
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 Fund logo appears here.)

<PAGE>
Table Of Contents

Prospectus Summary 3
About The
Fund ---------------------------------------------------

Expenses Summary 4

---------------------------------------------------

Objective 5
---------------------------------------------------

How The Objective Is Pursued 5
---------------------------------------------------

General Investment Policies 6
---------------------------------------------------

How Performance Is Shown 8
---------------------------------------------------

How The Fund Is Managed 8
---------------------------------------------------

Organization And History 11
---------------------------------------------------

How To Buy Shares 12
About Your
Investment ---------------------------------------------------

How To Redeem Shares 13

---------------------------------------------------

How To Exchange Shares 14
---------------------------------------------------

Distribution And Shareholder Servicing Plans 14
---------------------------------------------------

How The Fund Values Its Shares 15
---------------------------------------------------

How Dividends And Distributions Are Made; Tax
Information 16
---------------------------------------------------

Appendix A -- Portfolio Securities 17
---------------------------------------------------

Appendix B -- Description Of Ratings 24
---------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

<PAGE>
About The Fund

Prospectus Summary

(Bullet) TYPE OF COMPANY: Open-end management investment company.

(Bullet) INVESTMENT OBJECTIVE AND POLICIES:

(Bullet) Nations Money Market Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.

(Bullet) MINIMUM PURCHASE: The minimum initial investment in Liquidity Class
Shares is $500,000.

<PAGE>

Expenses Summary

Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes operating expenses for the Liquidity Class Shares of
the Fund. 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 Fund over
specified periods.

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)

<S> <C>
Nations
Money
Market
Reserves

Advisory Fees (After Fee Waivers) .10%
- ------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees (After Fee Waivers) .00%
- ------------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fees (After Fee Waivers) .15%
- ------------------------------------------------------------------------------------------------------------------------
Other Expenses (After Expense Waivers) .10%
- ------------------------------------------------------------------------------------------------------------------------
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 Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.

<S> <C> <C>
1 Year 3 Years

Nations Money Market Reserves $ -- $ --
</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" figure contained in the above table is based on
estimated amounts and reflects anticipated fee waivers 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.

<PAGE>
The Trust also offers Capital Class, Adviser Class and Market Class Shares of
the Fund. For a more complete description of the Funds' operating expenses, see
"How The Fund Is Managed."

Absent waivers, the "Advisory Fees", "Rule 12b-1 Fees", "Shareholder Servicing
Fees", "Other Expenses" and "Total Operating Expenses" for Nations Money Market
Reserves would be . %, . %, . %, . % and % of average net assets,
respectively.

Objective

NATIONS MONEY MARKET RESERVES: Nations Money Market Reserves' investment
objective is to preserve principal value and maintain a high degree of liquidity
while providing current income.

How The Objective Is Pursued

NATIONS MONEY MARKET RESERVES

In pursuing its investment objective, the Fund invests only in first tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"). The term "First Tier
Securities" has a technical definition given by the SEC, but generally refers to
securities that, in the Adviser's view, present minimal credit risks and have
the highest short-term debt rating at the time of purchase by one (if rated by
only one) or more nationally recognized statistical rating organizations
("NRSROs"). The six NRSROs are Duff & Phelps Credit Rating Co. ("D&P"), Fitch
Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomsom BankWatch,
Inc. ("BankWatch") or Moody's Investor Services ("Moody's").

<PAGE>
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 will
also 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 lend its portfolio securities to
qualified institutional investors, consistent with its investment objective and
policies.

General Investment Policies

For a description of the Fund's permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."

The Fund 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 the 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 the Fund.

The Fund may not:

1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more

<PAGE>
than 5% of the total assets of the Fund would be invested in the securities of
such issuer. This restriction applies to 75% of the Fund's assets.

The foregoing percentages will apply at the time of the purchase of a security.

<PAGE>

How Performance Is Shown

From time to time the Fund may advertise the "yield" and "effective 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 the Fund refers to the income generated by
an investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.

In addition to Liquidity Class Shares, the Fund offers 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 Fund's
shares. The Fund's annual report contains additional performance information and
is available upon request without charge from the Fund's distributor or 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 Fund Is Managed

TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza,

<PAGE>
Charlotte, North Carolina 28255, serves as investment sub-adviser to the Fund.
TradeStreet is a wholly owned subsidiary of NationsBank. TradeStreet provides
investment management services to individuals, corporations and institutions.

NBAI, TradeStreet and the administrator and the co-administrator of the Fund
have voluntarily agreed to waive their fees (and reimburse the Fund 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 Fund (as a percentage of average daily net assets) to .20%.

<PAGE>
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 Fund, 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 Fund.

Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Liquidity Class Shares of the Fund. 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 the Fund 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 the 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 the Fund, as well as certain expenses
attributable to Liquidity Class Shares, are deducted from

<PAGE>
accrued income before dividends are declared. The Fund's 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., Nations Annuity Trust and the
Trust. The Nations Funds Family currently has more than 62 distinct investment
portfolios and total assets in excess of $30 billion. The Declaration of Trust
permits the Trust to offer separate series of units of beneficial interest
("shares") and different classes of each series. The Fund is a series of the
Trust. Except for differences between classes of the Fund pertaining to
distribution and shareholder servicing arrangements, each share of the Fund
represents an equal proportionate interest in the Fund. This Prospectus relates
to the Liquidity Class Shares of the Trust's Nations Money Market Reserves. NBAI
is the investment adviser and TradeStreet is the investment sub-adviser for the
Fund.

In addition to the Liquidity Class Shares, the Fund also offers 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

<PAGE>
another in the Fund. Information regarding the Capital Class, the Adviser Class
and the Market Class Shares of the Fund is contained in separate prospectuses
that may be obtained from the Trust's distributor. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact Nations Funds at 1-800-626-2275.

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.

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 Fund 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 Fund may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportu-

<PAGE>
nities 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

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 the 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 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.

<PAGE>

How To Exchange Shares

The exchange feature enables a shareholder of Liquidity Class Shares of the 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 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.

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 Fund may reimburse Stephens for
certain expenses incurred by Stephens in connection with the distribution of
Liquidity Class Shares of the Fund, 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 not
reimbursing Stephens for any portion of such expenses. Unreimbursed expenses
incurred

<PAGE>
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 the 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
the 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 the 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 Fund's Servicing Plan
described above and the terms of the shareholder servicing agreements. See the
SAI for more details on the Servicing Plan.

How The Fund Values Its Shares

The assets of the Fund are valued based upon the amortized cost method. Although
Nations Funds seeks to maintain the net asset value per share of the Funds at
$1.00, there can be no assurance that its net asset value per share will not
vary.

<PAGE>

How Dividends And Distributions Are
Made; Tax Information

The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only

<PAGE>
some of the important income tax considerations generally affecting the Fund and
its 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

<PAGE>
branches of foreign banks ("Yankee dollar" obligations).

<PAGE>
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 the Fund does not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
the Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, the Fund's asset coverage and other factors at the time of a reverse
repurchase, the Fund may not establish a segregated account when the Adviser
believes it is not in the best 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.

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 Money Market
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.

<PAGE>
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 the Fund may be subject to
greater fluctuation in price than securities of domestic companies.

The Fund 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 Fund 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, the Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to the 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.

ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
Fund sells its shares. Repurchase agreements, time deposits and GICs that do not
provide for payment to the Fund within seven days after notice, and illiquid
restricted securities are subject to the limitation on illiquid securities. In
addition, interests in privately arranged loans acquired by Nations Money Market
Reserves may be subject to this limitation.

<PAGE>
and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional or other buyers cease purchasing such
restricted securities pursuant to Rule 144A or otherwise, the level of
illiquidity of the Fund holding such securities may increase during such period.

Municipal Securities may include variable- or floating-rate instruments issued
by industrial

<PAGE>

development authorities and other governmental entities. While there may not be
an active secondary market with respect to a particular instrument purchased by
the 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 the 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.

The 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 Fund
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.

<PAGE>
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, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations'
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 the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.

SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 33% of the
value of its total assets. Cash collateral received by a Nations Fund may be
invested in a Nations' Money Market Fund.

SHORT-TERM TRUST OBLIGATIONS: Nations Money Market 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.

<PAGE>
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.

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.

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.

<PAGE>
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:

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:

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+.

<PAGE>
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.