As filed with the Securities and Exchange Commission
on August 28, 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. 22 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 23 |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)
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Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C>
|_| Immediately upon filing pursuant to Rule 485(b); or |X| on September 1, 1998 pursuant to Rule 485(b), or
|_| 60 days after filing pursuant to Rule 485(a), or |_| on (date) pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2) |_| on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 22 to the Registration Statement
of The Capitol Mutual Funds (d/b/a/ Nations Institutional Reserves) (the
"Trust") is provided in order to provide updated financial information for
the Trust's investment funds (the "Funds"), and to effect certain related,
non-material changes
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE CAPITOL MUTUAL FUNDS
D/B/A NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
PART A
Item No. Prospectus
- -------- ----------
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.
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10. Cover Page.................................................................... Cover Page
1
<PAGE>
11. Table of Contents............................................................ Table of Contents
12. General Information and History.............................................. The Trust
13. Investment Objectives and Policies........................................... Description of Permitted Investments;
Investment Limitations; Securities
Lending
14. Management of the Registrant................................................. Trustees and Officers
15. Control Persons and Principal Holders of Securities.......................... 5% Shareholders
16. Investment Advisory and Other Services....................................... The Adviser; The
Administrator and Co-
Administrator; Distribution
and Shareholder Servicing
Plans; and Custodian and
Transfer Agent
17. Brokerage Allocation ........................................................... Portfolio Transactions
18. Capital Stock and Other Securities.............................................. Description of Shares
19. Purchase, Redemption and Pricing of Securities
being Offered................................................................... Net Asset-Value -- Purchases and
Redemptions; Distributor
20. Tax Status...................................................................... Taxes
19. Underwriters.................................................................... Distribution and
Shareholder Servicing Plans
20. Calculation of Performance Data................................................. Performance Information
21. Financial Statements............................................................ Experts and Financial Information
</TABLE>
2
<PAGE>
PART C
Item No.
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Information required to be in Part C is set forth under the appropriate Item,
so numbered, in Part C of this document.
3
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)
(the "Trust") is an open-end management investment company which seeks to
provide a convenient and economical means of investing in one or more
professionally managed funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Capital Class Shares of the following
diversified money market funds (each, a "Fund" and collectively the "Funds"):
NATIONS CASH RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Capital Class Shares are offered to institutional investors that
meet the $1,000,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Capital Class Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI"), that has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by writing or
calling the Trust at the address or telephone number shown below. The SAI for
the Trust, dated September 1, 1998, is incorporated by reference in its
entirety into this Prospectus. 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
each of the Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is
the investment sub-adviser to the Funds. As used herein the term "Adviser"
shall mean NBAI and/or TradeStreet as the context may require. For additional
information, see "How The Funds Are Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Cash Reserves
Nations Money Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Capital Class Shares
September 1, 1998
For Fund information call:
1-800-626-2275
Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUNDS
CAPITAL 9/98
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
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Expenses Summary 4
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Objectives 6
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How Objectives Are Pursued 6
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General Investment Policies 9
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How Performance Is Shown 11
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How The Funds Are Managed 11
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Organization And History 14
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How To Buy Shares 15
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About Your
Investment
How To Redeem Shares 16
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How To Exchange Shares 17
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How The Funds Value Their Shares 17
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How Dividends And Distributions Are Made;
Tax Information 18
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Financial Highlights 19
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Appendix A -- Portfolio Securities 24
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Appendix B -- Description Of Ratings 31
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.
o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation
of capital and a stable net asset value.
o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income exempt from Federal income taxes.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to the Funds. For more information about the
investment adviser and investment sub-adviser to the Funds, see "How The
Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "How Objectives Are Pursued --
Restraints on Investments by Money Market Funds" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Capital Class Shares is
$1,000,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize operating expenses for the Capital Class Shares
of the Funds. There are no transaction fees imposed upon the purchase,
redemption or exchange of shares. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Money Nations Nations Nations
Cash Market Treasury Government Municipal
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Other Expenses (After Fee Waivers and Expense
Reimbursements) .05% .08% .06% .06% .06%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .20% .20% .20% .20% .20%
</TABLE>
Examples: You would pay the following expenses on a $1,000 investment in the
Capital Class Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $2 $6 $11 $26
Nations Money Market Reserves $2 $6 $11 $26
Nations Treasury Reserves $2 $6 $11 $26
Nations Government Reserves $2 $6 $11 $26
Nations Municipal Reserves $2 $6 $11 $26
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Capital Class Shares would
bear either directly or indirectly. The figures contained in the above tables
are based on amounts incurred during each Fund's most recent fiscal year and
have been adjusted as necessary to reflect current service provider fees. There
is no assurance that any fee waivers and/or reimbursements will continue. In
particular, to the extent Other Expenses are less than those shown, 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 fee waivers and/or reimbursements are decreased or discontinued,
the amounts contained in the "Examples" above may increase. The information set
forth in the foregoing table and examples relates only to the Capital Class
Shares. The Trust also offers the Liquidity Class, the Adviser Class and the
Market Class Shares of the Funds which are subject to the same expenses plus
additional distribution and/or shareholder servicing fees. For a more complete
description of the Funds' operating expenses, see "How The Funds Are Managed."
4
<PAGE>
Absent fee waivers and expense reimbursements, "Advisory Fees", "Other
Expenses" and "Total Operating Expenses" for Capital Class Shares of the
indicated Fund would be as follows: Nations Cash Reserves -- .30%, .14% and
.44%, respectively; Nations Money Market Reserves -- .30%, .19% and .49%,
respectively; Nations Treasury Reserves -- .30%, .15% and .45%, respectively;
Nations Government Reserves -- .30%, .15% and .45%, respectively; and Nations
Municipal Reserves -- .30%, .18% and .48%, respectively.
FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Objectives
Each Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Money Market Reserves: Nations Money Market Reserves' investment
objective is to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value.
Nations Treasury Reserves: Nations Treasury Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Government Reserves: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Municipal Reserves: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
How Objectives Are Pursued
Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; (v) instruments eligible for acquisition by Nations
Government Reserves (see below); and (vi) repurchase agreements and reverse
repurchase agreements involving any of the foregoing obligations. The Fund also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies.
The short-term obligations that may be purchased by the Fund include
instruments issued by trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
The Fund reserves the right 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
6
<PAGE>
assets in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
Nations Money Market Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; and (v) repurchase agreements and reverse repurchase
agreements involving any of the foregoing obligations. The Fund also may invest
in guaranteed investment contracts and in securities issued by other investment
companies, consistent with its investment objective and policies. The short-term
obligations that may be purchased by the Fund include instruments issued by
trusts, partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers. The Fund 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.
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 U.S.
Government Obligations, repurchase agreements and cash. For more information
concerning these instruments, see "Appendix A."
This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating, the Fund must invest strictly in Prime-1 rated issues.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning these instruments, see "Appendix A."
Nations Treasury Reserves
In pursuing its investment objective, the Fund will invest in direct
obligations issued by the U.S. Treasury, STRIPS, and repurchase agreements and
reverse repurchase agreements involving such obligations. The Fund also may
invest in obligations the principal and interest of which are backed by the
full faith and credit of the United States Government, provided that the Fund
shall, under normal market conditions, invest at least 65% of its total assets
in U.S. Treasury bills, notes and bonds and other instruments issued directly
by the U.S. Government and repurchase agreements secured by such obligations.
The Fund also may lend its portfolio securities to qualified institutional
investors, and may invest in securities issued by other investment companies,
consistent with its investment objective and policies.
7
<PAGE>
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P")1
Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Government Reserves
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Municipal Reserves
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt
from Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities that are determined to present minimal
credit risks and that at the time of purchase, are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"), S&P, Thomson BankWatch, Inc.
("BankWatch") or Moody's Investors Services, Inc. ("Moody's") in the case of
certain bonds which are lacking a short-term rating from the requisite number of
NRSROs; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P,
or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1"
or higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, and BankWatch are each an NRSRO. Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable Municipal Securities ratings are described in "Appendix
B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI.
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally tax-
exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain
- ---------------------
1 "Standard and Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
8
<PAGE>
trusts, partnerships or other special purpose issuers, including pass-through
certificates represent-ing participations in, or debt instruments backed by,
the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities(as defined below). For more
information concerning the Fund's investments, see "Appendix A."
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any guaranty by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security and does
not guarantee the yield or value of that security or the yield or value of
shares of that Fund.
Restraints on Investments by Money Market Funds: In order for the Funds to
value their investments on the basis of amortized cost (see "How The Funds
Value Their Shares"), investments must be in accordance with the requirements
of Rule 2a-7 under the 1940 Act, some of which are described below. A money
market fund is limited to acquiring obligations with a remaining maturity of
397 days or less, or obligations with greater maturities, provided such
obligations are subject to demand features or resets which are less than 397
days, and to maintaining a dollar-weighted average portfolio maturity of 90
days or less. Quality requirements generally limit investments to U.S. dollar
denominated instruments determined to present minimal credit risks and that, at
the time of acquisition, are rated in the first or second rating categories
(known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a money market fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to
25% of total assets may be invested in the first tier securities of a single
issuer for three business days. Additionally (except for Nations Municipal
Reserves), no more than 5% of total assets may be invested, at the time of
acquisition, in second tier securities in the aggregate, and any investment in
second tier securities of one issuer is limited to the greater of 1% of total
assets or one million dollars. Securities issued by the U.S. Government, its
agencies, authorities or instrumentalities are exempt from the quality
requirements, other than minimal credit risk. In the event that a Fund's
investment restrictions or permissible investments are more restrictive than
the requirements of Rule 2a-7, the Fund's own restrictions will govern.
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Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed 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 SAI.
The Funds may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if
as a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of each Fund's
assets. Securities purchased by Nations Money Market Reserves that are subject
to certain unconditional demand features are subject to different
diversification requirements as described in the SAI.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments; and (c) with certain limited exceptions with
respect to Nations Money Market Reserves.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter
into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid restricted securities and other securities which are not
readily marketable do not exceed, in the aggregate, 10% of the Fund's total
assets; and (c) each Fund except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
4. Nations Money Market Reserves may not borrow money except for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing. Whenever borrowings exceed 5% of the Fund's total
assets, the Fund will not make any investments.
The foregoing percentages will apply at the time of the purchase of a security.
The investment objective and certain investment policies of each Fund are
fundamental policies of each Fund. It is also a fundamental policy of each Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Funds will be able to maintain a constant net asset value of
$1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of
a Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
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How Performance Is Shown
From time to time, the Funds may advertise the "yield" and "effective yield" of
a class of shares and Nations Municipal Reserves also may advertise the "tax
equivalent yield" of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a class
of shares of a Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The "tax-equivalent yield" of each class of shares of Nations Municipal
Reserves shows the level of taxable yield which, after payment of Federal
income tax in respect of such yield, equals the class's yield. The
tax-equivalent yield of a class of shares will always be higher than its yield.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield.
In addition to Capital Class Shares, the Funds offer Liquidity Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. The Funds' annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's agent or by calling Nations Funds at the toll-free number indicated
on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under
the direction of its Board of Trustees. The SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
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NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. The Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with
NationsBank or which have sold shares in the Funds, if the Adviser believes
that the quality of the transactions and the commissions are comparable to what
they would be with other qualified brokerage firms. From time to time, to the
extent consistent with its investment objective, policies and restrictions,
each Fund may invest in securities of companies with which NationsBank has a
lending relationship.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at an annual rate of .30% of the average daily net assets of
each Fund.
For the services provided and the expenses assumed pursuant to the investment
sub-advisory agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of .033% of the average daily net
assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for
certain expenses) in order to limit the total annualized operating expenses of
the Capital Class Shares of the Funds (as a percentage of average daily net
assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the investment advisory agreement, advisory fees at the indicated rates
of the following Funds' net assets: Nations Cash Reserves -- .15%; Nations
Treasury Reserves -- .14%; Nations Government Reserves -- .14%; and Nations
Municipal Reserves -- .12%.
For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the investment sub-advisory agreement, sub-advisory fees at the indicated
rates of the following Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- .033%.
For the fiscal period from December 1, 1997 to May 15, 1998, the Emerald Funds
paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous investment
advisory agreement, fees at the rate of .10% of the Nations Money Market
Reserves' average daily net assets (formerly called the Emerald Prime Advantage
Institutional Fund.)
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves, Nations Money
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Market Reserves, Nations Treasury Reserves and Nations Government Reserves.
The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.
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
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such entities from continuing to perform, in whole or in part, such services.
If such entities were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an administration agreement. Pursuant to the terms of the
administration agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net
asset values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for
the Funds. For the services rendered pursuant to the administration and
co-administration agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees, at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. No
compensation is paid to Stephens for distribution services for the Capital
Class Shares.
The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/ dealers or financial institutions that sell shares of the
Funds may earn additional compensation, including 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. This non-cash compensation program may
be amended or terminated at any time by Stephens.
The Bank of New York ("BNY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds. In return for providing custodial services to the Nations
Funds Family, BNY is entitled to receive, in addition to out-of-pocket
expenses, fees at the rate of (i) 3/4 of one
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basis point per annum on the aggregate net assets of all Nations Funds'
non-money market funds up to $10 billion; and (ii) 1/2 of one basis point on
the excess, including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares.
PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Capital Class Shares may bear certain class specific
expenses. Any general expenses of Nations Institutional Reserves that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Institutional Reserves or in such other manner
as the Board of Trustees deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and
Declaration of Trust dated January 22, 1990. The Trust's fiscal year end is
April 30. The Agreement and Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and
shareholder servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates only to the
Capital Class Shares of the following Funds of Nations Institutional Reserves:
Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury
Reserves, Nations Government Reserves and Nations Municipal Reserves.
In addition to Capital Class Shares, the Funds also offer Liquidity Class,
Adviser Class and Market Class Shares. Liquidity Class Shares are offered to
institutional investors which meet the $500,000 minimum initial investment
requirement and to NationsBank and its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary,
agency or custodial capacity. Liquidity Class Shares of the Funds bear
aggregate distribution and shareholder servicing fees of up to 0.85% of the
class's average daily net assets. Adviser Class Shares are offered to
institutional investors, 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. Adviser Class Shares also bear
shareholder servicing fees of up to .25% of the class's average net assets.
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
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initial investment for such shares. Market Class Shares bear aggregate
distribution and shareholder servicing fees of up to .45% of the class's
average net assets. A salesperson and any other person or entity entitled to
receive compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding Liquidity Class, Adviser Class and Market Class
Shares of the Funds is contained in separate prospectuses that may be obtained
from the Trust's distributor. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact Nations
Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a
special meeting called upon written request of shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
As of September 1, 1998, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding
shares of the Trust and therefore could be considered to be a controlling
person of the Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI.
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.
The Funds reserve the right, in their discretion, to make Capital Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
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, the Transfer Agent or their
respective agents. A purchase order must be received by Stephens, the Transfer
Agent or their respective agents by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves). A purchase order
received after such time will not be accepted; notice thereof will be given to
the institution placing the order and any funds received will be returned
promptly to the sending institution. If federal funds are not available by 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, the Transfer Agent or their respective
agents. The agents are responsible for transmitting orders for purchases of
Capital Class Shares by their customers and delivering required funds
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on a timely basis. Stephens is also responsible for transmitting orders its
receives to Nations Funds.
Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature
after opening an account, a signature guarantee will be required. Shareholders
should be aware that by electing the telephone transaction feature, such
shareholder may be giving up a measure of security that they may have if they
were to authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves),
and payment will normally be wired the same day. The Trust reserves the right
to wire redemption proceeds within three Business Days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Fund. Redemption orders will not be accepted by Stephens,
the Transfer Agent or their respective agents after 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), for
execution on that Business Day. The redemption price is the net asset value per
share next determined after acceptance of the redemption order by Stephens, the
Transfer Agent or their respective agents. Redeemed shares are not entitled to
dividends declared on the day the redemption order is effective. A redemption
will generally result in a taxable capital gain or loss for Federal income tax
purposes.
The Trust may redeem an investor's account upon 30 day's written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an agent pursuant to
arrangements between the agent and its customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Capital Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
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How To Exchange Shares
The exchange feature enables a shareholder of Capital Class Shares of a Fund to
acquire Capital Class Shares of another Fund when that shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange
of Capital Class Shares for Capital Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. For Federal income tax
purposes, an exchange will be treated in the same manner as a redemption of
shares.
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 Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the
total value of its respective assets, less liabilities, by the number of shares
in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. Currently, the days on which the Federal Reserve Bank of New York
is closed (other than weekends) are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of
3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Municipal Reserves), on the day of declaration. Dividends are paid by each Fund
in additional shares of the same class, unless the shareholder has elected to
take such payment in cash, on the first Business Day of each month.
Shareholders may change their election by providing written notice to the
Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.
Tax Information: Each of the Funds intends to continue to qualify as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification relieves a Fund of liability for
Federal income tax to the extent its earnings are distributed in accordance
with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated
as capital gain distributions and will be taxable to the Fund's shareholders as
long-term capital gains. Noncorporate 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 a
Fund's shareholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by January 31 of the following
year will be taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state individual income
taxes when such obligations are held directly. To the extent distributions of a
Fund's net investment income is attributable to interest on such obligations,
such distributions may also be exempt from state individual 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 individual income taxation. Nations Cash
Reserves, Nations Government Reserves, Nations Treasury Reserves and 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 a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be
subject to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though
a substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the
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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 taxes.
See "Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your own 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.
Financial Highlights
Except as set forth below, the following financial information has been derived
from the audited financial statements of Nations Institutional Reserves.
PricewaterhouseCoopers LLP is the independent accountant to Nations
Institutional Reserves. The report of PricewaterhouseCoopers LLP for the most
recent fiscal year of Nations Institutional Reserves accompanies the financial
statements and is incorporated by reference in the SAI, which is available upon
request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
Information for the Capital Class Shares of Nations Money Market Reserves has
been derived from the audited financial statements of the Emerald Prime
Advantage Institutional Fund (the predecessor portfolio). KPMG Peat Marwick LLP
were the independent auditors for the Emerald Prime Advantage Institutional
Fund for the fiscal period December 1, 1997 through May 15, 1998 and for the
fiscal year ended November 30, 1997. PricewaterhouseCoopers LLP was the
independent accountant for the Emerald Prime Advantage Institutional Fund for
the fiscal period from December 7, 1988 through November 30, 1996. The reports
of KPMG Peat Marwick LLP for the fiscal period December 1, 1997 through May 15,
1998 and for the fiscal year ended November 30, 1997 of the Emerald Prime
Advantage Institutional Fund accompany the financial statements for such
periods and are incorporated by reference in the SAI, which is available upon
request.
19
<PAGE>
FOR A CAPITAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Cash Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96
<S> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0554 0.0531 0.0570
Dividends From Net
Investment Income (0.0554) (0.0531) (0.0570)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.70 % 5.44 % 5.84 %
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $3,051,559 $1,684,233 $607,643
Ratio Of Operating
Expenses To Average
Net Assets 0.20%** 0.20 % 0.20 %
Ratio Of Net
Investment Income
To Average Net
Assets 5.54 % 5.32 % 5.53 %
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.44 % 0.45 % 0.51 %
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0480 0.0283 0.0315 0.0492 0.0392
Dividends From Net
Investment Income (0.0480) (0.0283) (0.0315) (0.0492) (0.0392)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.91 % 2.87 % 3.19 % 5.03 % 7.35 %+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $134,064 $109,852 $55,739 $100,943 $19,387
Ratio Of Operating
Expenses To Average
Net Assets 0.29 % 0.45 % 0.45 % 0.45 % 0.45 %+
Ratio Of Net
Investment Income
To Average Net
Assets 4.96 % 2.83 % 3.15 % 4.61 % 7.04 %+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.52 % 0.56 % 0.59 % 0.74 % 0.79 %+
</TABLE>
* Nations Cash Reserves Capital Class Shares commenced operations on October
10, 1990.
** The effect of interest expense on the operating expense ratio was less than
0.01%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
20
<PAGE>
FOR A CAPITAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Money Market Reserves*
<TABLE>
<CAPTION>
PERIOD YEAR
ENDED ENDED
05/15/98** 11/30/97(a)
<S> <C> <C>
Net asset value, beginning of
period $ 1.0000 $ 0.9999
Income from investment
operations:
Net investment income 0.0252 0.0545
Net realized gain (loss) -- --
Total income from investment
operations 0.0252 0.0545
Less dividends and distributions
Dividends from net investment
income (0.0252) (0.0545)
Distributions from net realized
gains on securities -- --
Total dividends and
distributions (0.0252) (0.0545)
Increase due to voluntary capital
contribution from Sub-Adviser -- --
Net change in net asset value -- --
Net asset value, end of period $ 1.0000 $ 0.9999
Total return 2.55 %(b) 5.58 %
Ratios/supplemental data:
Net assets, end of period in
(000's) $118,880 $177,908
Ratio of expenses to average net
assets 0.20 %(c) 0.20 %
Ratio of net investment income
to average net assets 5.54 %(c) 5.45 %
Ratio of expenses to average net
assets*** 0.27 %(c) 0.28 %
Ratio of net investment income
to average net assets*** 5.47 %(c) 5.37 %
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
11/30/96 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0017
Income from investment
operations:
Net investment income 0.0516 0.0561 0.0377 0.0304
Net realized gain (loss) -- -- (0.0038) 0.0005****
Total income from investment
operations 0.0516 0.0561 0.0339 0.0309
Less dividends and distributions
Dividends from net investment
income (0.0516) (0.0561) (0.0377) (0.0304)
Distributions from net realized
gains on securities -- -- -- (0.0022)
Total dividends and
distributions (0.0516) (0.0561) (0.0377) (0.0326)
Increase due to voluntary capital
contribution from Sub-Adviser -- -- 0.0037 --
Net change in net asset value -- -- (0.0001) (0.0017)
Net asset value, end of period $ 0.9999 $ 0.9999 $ 0.9999 $ 1.0000
Total return 5.29 % 5.76 % 3.83 % 3.31 %
Ratios/supplemental data:
Net assets, end of period in
(000's) $133,044 $131,089 $131,758 $111,769
Ratio of expenses to average net
assets 0.35 % 0.40 % 0.40 % 0.40 %
Ratio of net investment income
to average net assets 5.16 % 5.60 % 3.80 % 3.03 %
Ratio of expenses to average net
assets*** 0.35 % 0.46 % 0.44 % 0.44 %
Ratio of net investment income
to average net assets*** 5.16 % 5.54 % 3.76 % 3.00 %
</TABLE>
* Capital Class Shares of Nations Money Market Reserves were formerly shares
of Emerald Prime Advantage Institutional Fund, a predecessor portfolio.
** For the period from December 1, 1997 through May 15, 1998.
*** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
**** Net realized gain per share is the direct result of a decrease in
outstanding shares between 11/30/92 and the date of the gain distribution.
(a) Effective December 1, 1996, Rodney Square Management Corporation no
longer serves as Sub-Adviser to the Fund.
(b) Not annualized.
(c) Annualized.
21
<PAGE>
FOR A CAPITAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0541 0.0519 0.0556 0.0480
Net Realized Gain On
Investments -- -- -- --
Total From Investment
Operations 0.0541 0.0519 0.0556 0.0480
Less Distributions:
Dividends From Net
Investment Income (0.0541) (0.0519) (0.0556) (0.0480)
Distributions From Net
Realized Gains -- -- -- --
Total Distributions (0.0541) (0.0519) (0.0556) (0.0480)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.55 % 5.30 % 5.71 % 4.91 %
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $246,058 $468,975 $304,342 $251,694
Ratio Of Operating
Expenses To Average Net
Assets 0.20 % 0.20 % 0.20 % 0.20 %
Ratio Of Net Investment
Income To Average Net
Assets 5.41 % 5.20 % 5.50 % 4.79 %
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.45 % 0.46 % 0.51 % 0.50 %
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment
Operations:
Net Investment Income 0.0298 0.0323 0.0481 0.0176
Net Realized Gain On
Investments -- 0.0001 0.0003 --
Total From Investment
Operations 0.0298 0.0324 0.0484 0.0176
Less Distributions:
Dividends From Net
Investment Income (0.0298) (0.0323) (0.0481) (0.0176)
Distributions From Net
Realized Gains -- (0.0001) (0.0003) --
Total Distributions (0.0298) (0.0324) (0.0484) (0.0176)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.02 % 3.29 % 4.92 % 5.89 %+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $338,504 $418,644 $19,587 $ 4,519
Ratio Of Operating
Expenses To Average Net
Assets 0.20 % 0.20 % 0.26 % 0.45 %+
Ratio Of Net Investment
Income To Average Net
Assets 2.99 % 2.99 % 4.39 % 5.85 %+
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.52 % 0.72 % 1.06 % 0.94 %+
</TABLE>
* Nations Treasury Reserves Capital Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
22
<PAGE>
FOR A CAPITAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96
<S> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment Income 0.0543 0.0520 0.0556
Net Realized Gain On
Investments -- -- --
Total From Investment
Operations 0.0543 0.0520 0.0556
Less Distributions:
Dividends From Net
Investment Income (0.0543) (0.0520) (0.0556)
Distributions From Net
Realized Gains -- -- --
Total Distributions (0.0543) (0.0520) (0.0556)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.57 % 5.33 % 5.71 %
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $190,607 $125,377 $58,121
Ratio Of Operating
Expenses To Average
Net Assets 0.20 % 0.20 %(a) 0.20 %
Ratio Of Net
Investment Income
To Average Net
Assets 5.43 % 5.22 % 5.48 %
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.45 % 0.49 %(a) 0.53 %
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment Income 0.0463 0.0278 0.0312 0.0343 0.0168
Net Realized Gain On
Investments -- -- -- 0.0023 --
Total From Investment
Operations 0.0463 0.0278 0.0312 0.0366 0.0168
Less Distributions:
Dividends From Net
Investment Income (0.0463) (0.0278) (0.0312) (0.0343) (0.0168)
Distributions From Net
Realized Gains -- -- -- (0.0023) --
Total Distributions (0.0463) (0.0278) (0.0312) (0.0366) (0.0168)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.72 % 2.82 % 3.15 % 3.71 % 5.57 %+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 2 $10,819 $ 7,396 $ 1,800 $ 295
Ratio Of Operating
Expenses To Average
Net Assets 0.32 % 0.45 % 0.45 % 0.45 % 0.45 %+
Ratio Of Net
Investment Income
To Average Net
Assets 4.35 % 2.78 % 3.07 % 4.24 % 5.89 %+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.54 % 0.51 % 0.64 % 0.76 % 0.80 %+
</TABLE>
* Nations Government Reserves Capital Class Shares commenced operations on
January 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expenses ratio, with and without waivers was less than 0.01%.
23
<PAGE>
FOR A CAPITAL CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0353 0.0337 0.0362 0.0313
Dividends From Net
Investment Income (0.0353) (0.0337) (0.0362) (0.0313)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.61 % 3.44 % 3.70 % 3.19 %
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $74,251 $59,701 $48,482 $32,353
Ratio Of Operating
Expenses To Average
Net Assets 0.20%** 0.20 % 0.20 % 0.23 %
Ratio Of Net
Investment Income
To Average Net
Assets 3.53 % 3.38 % 3.61 % 3.36 %
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers And/Or
Expenses Reimbursed 0.48 % 0.52 % 0.58 % 0.59 %
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment Income 0.0198 0.0231 0.0356 0.0245
Dividends From Net
Investment Income (0.0198) (0.0231) (0.0356) (0.0245)
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 2.00 % 2.34 % 3.62 % 4.62 %+
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $35,698 $26,145 $18,150 $ 5,064
Ratio Of Operating
Expenses To Average
Net Assets 0.45 % 0.45 % 0.45 % 0.45 %+
Ratio Of Net
Investment Income
To Average Net
Assets 1.98 % 2.27 % 3.38 % 4.70 %+
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers And/Or
Expenses Reimbursed 0.58 % 0.66 % 0.89 % 0.99 %+
</TABLE>
* Nations Municipal Reserves Capital Class Shares commenced operations on
October 23, 1990.
** The effect of interest expense on the operating expense ratio was 0.02%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
24
<PAGE>
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves and Nations Money
Market Reserves generally limit investments in bank instruments to (a) U.S.
dollar-denominated obligations of U.S. banks which have total assets exceeding
$1 billion and which are members of the Federal Deposit Insurance Corporation
(including obligations of foreign branches of such banks) or of the 75 largest
foreign commercial banks in terms of total assets; or (b) U.S. dollar-
denominated bank instruments issued by other banks believed by the Adviser to
present minimal credit risks. For purposes of the foregoing, total assets may
be determined on the basis of the bank's most recent annual financial
statements.
Nations Cash Reserves and Nations Money Market Reserves may invest up to 100%
of their assets in obligations issued by banks. Nations Cash Reserves and
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
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign issuers may differ from those applicable to
domestic issuers. In addition, foreign banks are not subject to examination by
U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/ dealer, in return for cash, and
agrees to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing
the proceeds in tri-party repurchase agreements. Generally, the effect of such
a transaction is that a Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
25
<PAGE>
maintain cash, U.S. Government securities ("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, a 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. A Fund only enters into reverse repurchase
agreements (and repurchase agreements) with counterparties that are deemed by
the Adviser to be creditworthy. Reverse repurchase agreements are speculative
techniques involving leverage, and are subject to asset coverage requirements
if a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300%
of all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instru- ments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial
instruments to instruments that: (a) if rated by at least two NRSROs, are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such
rating(s), or (ii) of comparable quality to such instruments as determined by
the Board of Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Foreign Securities: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of
foreign governments and their political subdivisions (which will be limited to
direct government obligations and government-guaranteed securities). Such
investments may subject a Fund to special investment risks, including future
political and economic developments, the possible imposition of withholding
taxes on income (including interest, dividends 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.
26
<PAGE>
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and GICs that do not provide for
payment to a Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities. In addition,
interests in privately arranged loans acquired by Nations Cash Reserves and
Nations Money Market Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by such Fund's
Board of Trustees, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as
27
<PAGE>
the case may be, only the net amount of the two payment obligations. A Fund
will segregate, on a daily basis, cash or liquid high quality debt securities
with a value at least equal to the Fund's net obligations, if any, under a swap
agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality", a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liq-
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uidated. Moreover, such loans in most cases are not backed by the taxing
authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
Municipal Securities. To the extent that municipal participation interests are
considered to be "illiquid securities" such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Funds will only commit to purchase a security on a when-issued basis
with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. The Funds will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board of Trustees. Nations
Municipal Reserves may invest more than 40% of its portfolio in securities with
put or demand features guaranteed by banks and other financial institutions.
Accordingly, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
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Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities, the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the unique risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
Short-Term Trust Obligations: Nations Cash Reserves and 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 a 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 a Fund must satisfy the quality and
maturity requirements generally applicable to the Funds 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
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<PAGE>
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.
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
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<PAGE>
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa and A groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated F1+.
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.
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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:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the three highest investment grade ratings
used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short--
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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".
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Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)
(the "Trust") is an open-end management investment company which seeks to
provide a convenient and economical means of investing in one or more
professionally managed funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Adviser Class Shares of the following
diversified money market funds (each, a "Fund" and collectively the "Funds"):
NATIONS CASH RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Adviser Class Shares are offered to institutional investors that
meet the $100,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Adviser Class Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI"), that has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by writing or
calling the Trust at the address or telephone number shown below. The SAI for
the Trust, dated September 1, 1998 is incorporated by reference in its entirety
into this Prospectus. 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 each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the
investment sub-adviser to the Funds. As used herein the term "Adviser" shall
mean NBAI and/or TradeStreet as the context may require. For additional
information, see "How The Funds Are Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Cash
Reserves
Nations Money
Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Adviser Class Shares
September 1, 1998
For Fund information call:
1-800-626-2275
Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUNDS
ADVISER 9/98
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
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Expenses Summary 4
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Objectives 6
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How Objectives Are Pursued 6
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General Investment Policies 9
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How Performance Is Shown 11
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How The Funds Are Managed 11
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Organization And History 14
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How To Buy Shares 15
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About Your
Investment
How To Redeem Shares 16
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How To Exchange Shares 17
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Shareholder Servicing Plan 17
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How The Funds Value Their Shares 18
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How Dividends And Distributions Are Made;
Tax Information 18
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Financial Highlights 19
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Appendix A -- Portfolio Securities 24
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Appendix B -- Description Of Ratings 31
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.
o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation
of capital and a stable net asset value.
o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income exempt from Federal income taxes.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to the Funds. For more information about
the investment adviser and investment sub-adviser to the Funds, see "How
The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "How Objectives Are Pursued --
Restraints on Investments by Money Market Funds" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Adviser Class Shares is
$100,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize operating expenses for Adviser Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable
to a hypothetical $1,000 investment in the Funds over specified periods.
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Money Nations Nations Nations
Cash Market Treasury Government Municipal
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Rule 12b-1 Fees (Shareholder Servicing
Fees) .25% .25% .25% .25% .25%
Other Expenses (After Fee Waivers and
Expense Reimbursements) .05% .08% .06% .06% .06%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .45% .45% .45% .45% .45%
</TABLE>
Examples: An investor would pay the following expenses on a $1,000 investment
in Adviser Class Shares of the indicated Fund assuming (1) a 5% annual return
and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $5 $14 $25 $57
Nations Money Market Reserves $5 $14 $25 $57
Nations Treasury Reserves $5 $14 $25 $57
Nations Government Reserves $5 $14 $25 $57
Nations Municipal Reserves $5 $14 $25 $57
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Adviser Class Shares will
bear either directly or indirectly. Except for Nations Money Market Reserves,
whose expenses are based on estimates, the figures contained in the above
tables are based on amounts incurred during each Fund's most recent fiscal year
and have been adjusted as necessary to reflect current service provider fees.
There is no assurance that any fee waivers and/or reimbursements will continue.
In particular, to the extent Other Expenses are less than those shown, 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 fee waivers and/or reimbursements are decreased or discontinued,
the amounts contained in the "Examples" above may increase. The information set
forth in the foregoing table and examples relates only to the Adviser Class
Shares. The Trust also offers the Capital Class, Liquidity Class and Market
Class Shares of the Funds. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."
4
<PAGE>
Absent fee waivers and expense reimbursements, "Advisory Fees," "Other
Expenses" and "Total Operating Expenses" for Advisor Class Shares of the
indicated Fund would be as follows: Nations Cash Reserves -- .30%, .14% and
.69%, respectively; Nations Money Market Reserves -- .30%, .19% and .74%,
respectively; Nations Treasury Reserves -- .30%, .15% and .70%, respectively;
Nations Government Reserves -- .30%, .15% and .70%, respectively; and Nations
Municipal Reserves -- .30%, .18% and .73%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Objectives
Each Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Money Market Reserves: Nations Money Market Reserves' investment
objective is to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value.
Nations Treasury Reserves: Nations Treasury Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Government Reserves: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Municipal Reserves: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
How Objectives Are Pursued
Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; (v) instruments eligible for acquisition by Nations
Government Reserves (see below); and (vi) repurchase agreements and reverse
repurchase agreements involving any of the foregoing obligations. The Fund also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies.
The short-term obligations that may be purchased by the Fund include
instruments issued by trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
The Fund reserves the right 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
6
<PAGE>
assets in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
Nations Money Market Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; and (v) repurchase agreements and reverse repurchase
agreements involving any of the foregoing obligations. The Fund also may invest
in guaranteed investment contracts and in securities issued by other investment
companies, consistent with its investment objective and policies. The short-term
obligations that may be purchased by the Fund include instruments issued by
trusts, partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers. The Fund 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.
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 U.S.
Government Obligations, repurchase agreements and cash. For more information
concerning these instruments, see "Appendix A."
This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating the Fund must invest strictly in Prime-1 rated issues.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning these instruments, see "Appendix A."
Nations Treasury Reserves
In pursuing its investment objective, the Fund will invest in direct
obligations issued by the U.S. Treasury, STRIPS, and repurchase agreements and
reverse repurchase agreements involving such obligations. The Fund also may
invest in obligations the principal and interest of which are backed by the
full faith and credit of the United States Government, provided that the Fund
shall, under normal market conditions, invest at least 65% of its total assets
in U.S. Treasury bills, notes and bonds and other instruments issued directly
by the U.S. Government and repurchase agreements secured by such obligations.
The Fund also may lend its portfolio securities to qualified institutional
investors, and may invest in securities issued by other investment companies,
consistent with its investment objective and policies.
7
<PAGE>
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P")(1).
Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Government Reserves
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Municipal Reserves
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt
from Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities that are determined to present minimal
credit risks and, that at the time of purchase, are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"), S&P, Thomson BankWatch, Inc.
("BankWatch") or Moody's Investors Services, Inc. ("Moody's") in the case of
certain bonds which are lacking a short-term rating from the requisite number of
NRSROs; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P,
or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P, "F-1"
or higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate demand
notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1" or
higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, and BankWatch are each an NRSRO. Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable Municipal Securities ratings are described in "Appendix
B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI.
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally tax-
exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain
- ---------------------
(1) "Standard & Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
8
<PAGE>
trusts, partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any guaranty by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security and does
not guarantee the yield or value of that security or the yield or value of
shares of that Fund.
Restraints on Investments by Money Market Funds: In order for the Funds to
value their investments on the basis of amortized cost (see "How The Funds
Value Their Shares"), investments must be in accordance with the requirements
of Rule 2a-7 under the 1940 Act, some of which are described below. A money
market fund is limited to acquiring obligations with a remaining maturity of
397 days or less, or obligations with greater maturities, provided such
obligations are subject to demand features or resets which are less than 397
days, and to maintaining a dollar-weighted average portfolio maturity of 90
days or less. Quality requirements generally limit investments to U.S. dollar
denominated instruments determined to present minimal credit risks and that, at
the time of acquisition, are rated in the first or second rating categories
(known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a money market fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to
25% of total assets may be invested in the first tier securities of a single
issuer for three business days. Additionally (except for Nations Municipal
Reserves), no more than 5% of total assets may be invested, at the time of
acquisition, in second tier securities in the aggregate, and any investment in
second tier securities of one issuer is limited to the greater of 1% of total
assets or one million dollars. Securities issued by the U.S. Government, its
agencies, authorities or instrumentalities are exempt from the quality
requirements, other than minimal credit risk. In the event that a Fund's
investment restrictions or permissible investments are more restrictive than
the requirements of Rule 2a-7, the Fund's own restrictions will govern.
9
<PAGE>
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed 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 SAI.
The Funds may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if
as a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of each Fund's
assets. Securities purchased by Nations Money Market Reserves that are subject
to certain unconditional demand features are subject to different
diversification requirements as described in the SAI.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments; and (c) with certain limited exceptions with
respect to Nations Money Market Reserves.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter
into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid restricted securities and other securities which are not
readily marketable do not exceed, in the aggregate, 10% of the Fund's total
assets; and (c) each Fund except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
4. Nations Money Market Reserves may not borrow money except for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing. Whenever borrowings exceed 5% of the Fund's total
assets, the Fund will not make any investments.
The foregoing percentages will apply at the time of the purchase of a security.
The investment objective and certain investment policies of each Fund are
fundamental policies of each Fund. It is also a fundamental policy of each Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Funds will be able to maintain a constant net asset value of
$1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of
a Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
10
<PAGE>
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of
a class of shares and Nations Municipal Reserves may advertise the "tax
equivalent yield" of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares of a Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The "tax-equivalent yield" of each class of shares of Nations Municipal
Reserves shows the level of taxable yield which, after payment of Federal
income tax in respect of such yield, equals the class's yield. The
tax-equivalent yield of a class of shares will always be higher than its yield.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield.
In addition to Adviser Class Shares, the Funds offer Liquidity Class, Capital
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. The Funds' annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under
the direction of its Board of Trustees. The Trust's SAI contains the names of
and general background information concerning each Trustee of Nations
Institutional Reserves.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
11
<PAGE>
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. The Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions including, in the case
of agency transactions, financial institutions which are affiliated with
NationsBank or which have sold shares in the Funds, if the Adviser believes the
quality of the transactions and the commissions are comparable to what they
would be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at an annual rate of .30% of the average daily net assets of
each Fund.
For the services provided and the expenses assumed pursuant to the investment
sub-advisory agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of .033% of the average daily net
assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for
certain expenses) in order to limit the total annualized operating expenses of
the Adviser Class Shares (exclusive of Rule 12b-1 fees) of the Funds (as a
percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the advisory agreement, advisory fees at the indicated rates of the
following Funds' net assets: Nations Cash Reserves -- .15%; Nations Treasury
Reserves -- .14%; Nations Government Reserves -- .14%; and Nations Municipal
Reserves -- .12%.
For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the sub-advisory agreement, sub-advisory fees at the indicated rates of
the following Funds' net assets: Nations Cash Reserves -- .033%; Nations
Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and Nations
Municipal Reserves -- .033%.
For the fiscal period from December 1, 1997 to May 15, 1998, the Emerald Funds
paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous investment
advisory agreement, fees at the rate of .10% of the Nations Money Market
Reserves' average daily net assets (formerly called the Emerald Prime Advantage
Institutional Fund.)
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves, Nations Money Market Reserves,
Nations Treasury Reserves and Nations Government Reserves.
12
<PAGE>
The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.
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
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such entities from continuing to perform, in whole or in part, such services.
If such entities were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an administration agreement. Pursuant to the terms of the
administration agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net
asset values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for
the Funds. For the services rendered pursuant to the administration and
co-administration agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees, at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. No
compensation is paid to Stephens for distribution services for the Adviser
Class Shares.
The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the
Funds may earn additional compensation, including 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. This non-cash compensation program may
be amended or terminated at any time by Stephens.
The Bank of New York ("BNY" or the "Custodian") located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds.In return for providing custodial services to the Nations
Funds Family, the BNY is entitled to receive, 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 Funds' non-money market funds up to $10
billion; and (ii) 1/2 of one basis point
13
<PAGE>
on the excess including all Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Adviser Class Shares.
PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and directors);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Adviser Class Shares may bear certain class specific
expenses and also bear certain additional shareholder service and distribution
costs. Any general expenses of Nations Institutional Reserves that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Institutional Reserves or in such other manner
as the Board of Trustees deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and
Declaration of Trust dated January 22, 1990. The Agreement and Declaration of
Trust permits the Trust to offer separate series of units of beneficial
interest ("shares") and different classes of each series. Each Fund is a series
of the Trust. Except for differences between classes of a Fund pertaining to
distribution and shareholder servicing arrangements, each share of each Fund
represents an equal proportionate interest in that Fund. This Prospectus
relates only to the Adviser Class Shares of the following Funds of Nations
Institutional Reserves: Nations Cash Reserves, Nations Money Market Reserves,
Nations Treasury Reserves, Nations Government Reserves and Nations Municipal
Reserves.
In addition to Adviser Class Shares, the Funds also offer Capital Class,
Liquidity Class and 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. Liquidity Class Shares are offered to institutional
investors which meet the $500,000 minimum initial investment requirement and to
NationsBank and its affiliates and correspondents, for the investment of their
own funds or funds for which they act in a fiduciary, agency or custodial
capacity. Liquidity Class Shares of the Funds bear aggregate distribution and
shareholder servicing fees of up to .85% of the class's average daily net
assets. Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for which they act in
fiduciary, agency or custodial capacity and which meet the $250,000 minimum
initial investment for such shares. 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
14
<PAGE>
entitled to receive compensation for selling or servicing Fund shares may
receive different compensation with respect to one particular class of shares
over another in a Fund. Information regarding Capital Class, Liquidity Class
and Market Class Shares of the Funds is contained in separate prospectuses that
may be obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a
special meeting called upon written request of shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
As of September 1, 1998, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding
shares of the Trust and therefore could be considered to be a controlling
person of the Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI.
The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. Further information regarding individual
Trustees may be found in the SAI.
About Your Investment
How To Buy Shares
Adviser Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Adviser Class Shares is $100,000.
The Funds reserve the right in their discretion, to make Adviser Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
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, the Transfer Agent or their
respective agents. A purchase order must be received by Stephens, the Transfer
Agent or their respective agents by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves). A purchase order
received after such time will not be accepted; notice thereof will be given to
the institution placing the order and any funds received will be returned
promptly to the sending institution. If federal funds are not available by 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, the Transfer Agent or their respective
agents. The agents are responsible for transmitting orders for purchases of
Adviser Class Shares by their customers and delivering required funds on a
timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone.
15
<PAGE>
See "How to Redeem Shares" and "How to Exchange Shares" below. If a shareholder
desires to elect the telephone transaction feature after opening an account, a
signature guarantee will be required. Shareholders should be aware that by
electing the telephone transaction feature, such shareholders may be giving up
a measure of security that they may have if they were to authorize written
requests only. A shareholder may bear the risk of any resulting losses from a
telephone transaction. Nations Funds will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and if Nations
Funds and its service providers fail to employ such measures, they may be
liable for any losses due to unauthorized or fraudulent instructions. Nations
Funds provides written confirmation to shareholders of each telephone share
transaction. In addition, Nations Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves),
and payment will normally be wired the same day. The Trust reserves the right
to wire redemption proceeds within three Business Days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Fund. Redemption orders will not be accepted by Stephens,
the Transfer Agent or their respective agents after 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), for
execution on that Business Day. The redemption price is the net asset value per
share next determined after acceptance of the redemption order by Stephens, the
Transfer Agent or their respective agents. Redeemed shares are not entitled to
dividends declared on the day the redemption order is effective. A redemption
will generally result in a taxable capital gain or loss for Federal income tax
purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investors' account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Adviser Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
16
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder of Adviser Class Shares of a Fund to
acquire Adviser Class Shares of another Fund when that shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange
of Adviser Class Shares for Adviser Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each 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. For Federal income tax
purposes, an exchange will be treated in the same manner as a redemption of
shares.
The Adviser Class Shares exchanged must have a current value of at least
$100,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
your request directly to the institution through which the original shares were
purchased.
Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Adviser Class Shares of the Funds. Pursuant to the Servicing
Plan, the Trust, on behalf of each Fund, may enter into shareholder servicing
agreements ("Servicing Agreements") with banks, broker/dealers and other
financial institutions, including certain affiliates of NationsBank ("Servicing
Agents" also referred to as "Agents"). Under the Servicing Agreements, the
Servicing Agents will provide various shareholder support services to their
customers that are the owners of Adviser Class Shares ("Customers"), including
general shareholder liaison services; processing purchase, exchange and
redemption requests from Customers and placing orders with Stephens or the
Transfer Agent; processing dividend and distribution payments from the Funds on
behalf of Customers; providing sales information periodically to customers
showing their position in Adviser Class Shares; arranging for bank wires; and
providing such other similar services as may reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Adviser Class Shares. The Servicing Plan
also provides that, to the extent any portion of the fees payable under the
Servicing Plan is deemed to be for services primarily intended to result in the
sale of Fund shares, such fees are deemed approved and may be paid under the
Servicing Plan. Accordingly, the Servicing Plan was approved and will be
operated pursuant to Rule 12b-1 under the 1940 Act.
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<PAGE>
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Adviser Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with
the investment of their assets in Adviser Class Shares. Customers should read
this Prospectus in light of the terms governing their accounts with their
Servicing Agents.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the
total value of its respective assets, less liabilities, by the number of shares
in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. Currently, the days on which the Federal Reserve Bank of New York
is closed (other than weekends) are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of
3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Municipal Reserves), on the day of declaration. Dividends are paid by each Fund
in additional shares of the same class, unless the shareholder has elected to
take such payment in cash, on the first Business Day of each month.
Shareholders may change their election by providing written notice to the
Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.
Tax Information: Each of the Funds intends to continue to qualify as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification relieves a Fund of liability for
Federal income tax to the extent its earnings are distributed in accordance
with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated
as capital gain distributions and will be taxable to the Fund's shareholders as
long-term capital gains.
18
<PAGE>
Noncorporate 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 a Fund's shareholder takes
such distributions in cash or has them automatically reinvested in additional
Fund shares. However, distributions declared in October, November, and December
and distributed by January 31, of the following year will be taxable as if they
were paid by December 31.
Interest on U.S. Government Obligations is exempt from state individual income
taxes when such obligations are held directly. To the extent distributions of a
Fund's net investment income is attributable to interest on such obligations,
such distributions may also be exempt from state individual 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 individual income taxation. Nations Cash
Reserves, Nations Government Reserves, Nations Treasury Reserves and 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 a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be
subject to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though
a substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may be subject to backup withholding taxes. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your own 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.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Institutional Reserves. PricewaterhouseCoopers LLP is the
independent accountant to Nations Institutional Reserves. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations
Institutional Reserves accompany the financial statements and are incorporated
by reference in the SAI, which is available upon request. As of the date of
this Prospectus, no Adviser Class Shares of Nations Money Market Reserves have
been sold. As a result, certain financial information is not available and thus
not included in this Prospectus. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
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<PAGE>
FOR AN ADVISER CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Cash Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0529 0.0506 0.0545 0.0316
Dividends from net investment income (0.0529) (0.0506) (0.0545) (0.0316)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.43% 5.19% 5.58% 3.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $672,417 $247,551 $397,809 $ 47,682
Ratio of operating expenses to average net assets 0.45%** 0.45% 0.45% 0.54%+
Ratio of net investment income to average net assets 5.29% 5.07% 5.28% 4.71%+
Ratio of operating expenses to average net assets
without waivers 0.69% 0.70% 0.76% 0.77%+
</TABLE>
* Nations Cash Reserves Adviser Class Shares commenced operations on September
22, 1994.
** The effect of interest expense on the operating expense ratio was less than
0.01%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
20
<PAGE>
FOR AN ADVISER CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0516 0.0494 0.0531 0.0308
Dividends from net investment income (0.0516) (0.0494) (0.0531) (0.0308)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.28% 5.06% 5.45% 3.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $222,760 $154,256 $175,691 $55,762
Ratio of operating expenses to average net assets 0.45% 0.45% 0.45% 0.45%+
Ratio of net investment income to average net assets 5.16% 4.95% 5.25% 4.54%+
Ratio of operating expenses to average net assets
without waivers 0.70% 0.71% 0.76% 0.75%+
</TABLE>
* Nations Treasury Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
21
<PAGE>
FOR AN ADVISER CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0518 0.0495 0.0527 0.0299
Dividends from net investment income (0.0518) (0.0495) (0.0527) (0.0299)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.30% 5.07% 5.39% 3.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $70,164 $24,845 $108,168 $99,246
Ratio of operating expenses to average net assets 0.45% 0.45%(a) 0.45% 0.57%+
Ratio of net investment income to average net assets 5.18% 4.97% 5.23% 4.10%+
Ratio of operating expenses to average net assets
without waivers 0.70% 0.74%(a) 0.78% 0.79%+
</TABLE>
* Nations Government Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers, was less than 0.01%.
22
<PAGE>
FOR AN ADVISER CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0332 0.0313 0.0337 0.0199
Dividends from net investment income (0.0332) (0.0313) (0.0337) (0.0199)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.34% 3.19% 3.43% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $29,936 $ 7,296 $55,511 $64,123
Ratio of operating expenses to average net assets 0.45%** 0.45% 0.45% 0.48%+
Ratio of net investment income to average net assets 3.28% 3.13% 3.36% 3.11%+
Ratio of operating expenses to average net assets
without waivers and/or expenses reimbursed 0.73% 0.77% 0.83% 0.84%+
</TABLE>
* Nations Municipal Reserves Adviser Class Shares commenced operations on
September 22, 1994.
** The effect of interest expense on the operating expense ratio was 0.02%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves and Nations Money
Market Reserves generally limit investments in bank instruments to (a) U.S.
dollar-denominated obligations of U.S. banks which have total assets exceeding
$1 billion and which are members of the Federal Deposit Insurance Corporation
(including obligations of foreign branches of such banks) or of the 75 largest
foreign commercial banks in terms of total assets; or (b) U.S. dollar-
denominated bank instruments issued by other banks believed by the Adviser to
present minimal credit risks. For purposes of the foregoing, total assets may
be determined on the basis of the bank's most recent annual financial
statements.
Nations Cash Reserves and Nations Money Market Reserves may invest up to 100%
of their assets in obligations issued by banks. Nations Cash Reserves and
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
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
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<PAGE>
to examination by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BNY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and
agrees to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing
the proceeds in tri-party repurchase agreements. Generally, the effect of such
a transaction is that a Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities ("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, a 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. A Fund only enters into reverse repurchase
agreements (and repurchase agreements) with counterparties that are deemed by
the Adviser to be creditworthy. Reverse repurchase agreements are speculative
techniques involving leverage, and are subject to asset coverage requirements
if a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300%
of all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial
instruments to instruments that: (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
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<PAGE>
in priority and security to a class of short-term instruments of the same
issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Foreign Securities: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of
foreign governments and their political subdivisions (which will be limited to
direct government obligations and government-guaranteed securities). Such
investments may subject a Fund to special investment risks, including future
political and economic developments, the possible imposition of withholding
taxes on income (including interest, dividends and disposition proceeds),
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may
be subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of
foreign issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and GICs that do not
26
<PAGE>
provide for payment to a Fund within seven days after notice, and illiquid
restricted securities are subject to the limitation on illiquid securities. In
addition, interests in privately arranged loans acquired by Nations Cash
Reserves and Nations Money Market Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by such Fund's
Board of Trustees, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a
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<PAGE>
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
Municipal Securities. To the extent that municipal participation interests are
considered to be "illiquid securities" such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
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<PAGE>
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Funds will only commit to purchase a security on a when-issued basis
with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. The Funds will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board of Trustees. Nations
Municipal Reserves may invest more than 40% of its portfolio in securities with
put or demand features guaranteed by banks and other financial institutions.
Accordingly, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Funds's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the unique risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not
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<PAGE>
exceed 33% of the value of its total assets, which may include cash collateral
received for securities loans. Cash collateral received by a Nations Fund may
be invested in a Nations Funds' money market fund.
Short-Term Trust Obligations: Nations Cash Reserves and 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 a 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 a Fund must satisfy the quality and
maturity requirements generally applicable to the Funds pursuant to Rule 2a-7
under the 1940 Act.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate
and municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the highest three ratings used by Moody's for
corporate and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa and A groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
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<PAGE>
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 F1+.
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:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to varia-
32
<PAGE>
tion. 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".
33
<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)
(the "Trust") is an open-end management investment company which seeks to
provide a convenient and economical means of investing in one or more
professionally managed funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Liquidity Class Shares of the following
diversified money market funds (each, a "Fund" and collectively the "Funds"):
NATIONS CASH RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.
The Trust's Liquidity Class Shares are offered to institutional investors that
meet the $500,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Liquidity Class Shares should consider before
investing. Investors should read this Prospectus and retain it for future
reference. Additional information about the Trust is contained in a separate
Statement of Additional Information (the "SAI") that has been filed with the
Securities and Exchange Commission (the "SEC") and is available without charge
by writing or calling the Trust at the address or telephone number shown below.
The SAI for the Trust dated September 1, 1998, is incorporated by reference in
its entirety into this Prospectus. 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 each of the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is the investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or TradeStreet as the context may
require. For additional information, see "How The Funds Are Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Cash Reserves
Nations Money Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Liquidity Class Shares
September 1, 1998
For Fund information call:
1-800-626-2275
Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[LOGO]
LIQUIDITY 9/98
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
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Expenses Summary 4
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Objectives 5
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How Objectives Are Pursued 6
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General Investment Policies 8
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How Performance Is Shown 10
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How The Funds Are Managed 11
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Organization And History 14
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How To Buy Shares 15
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About Your Investment
How To Redeem Shares 16
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How To Exchange Shares 16
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Distribution And Shareholder Servicing Plans 17
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How The Funds Value Their Shares 18
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How Dividends And Distributions Are Made;
Tax Information 18
-----------------------------------------------------
Financial Highlights 19
-----------------------------------------------------
Appendix A -- Portfolio Securities 24
-----------------------------------------------------
Appendix B -- Description Of Ratings 31
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.
o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation
of capital and a stable net asset value.
o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income exempt from Federal income taxes.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to the Funds. For more information about
the investment adviser and investment sub-adviser to the Funds, see "How
The Funds Are Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "How Objectives Are Pursued --
Restraints on Investments by Money Market Funds" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Liquidity Class Shares is
$500,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize operating expenses for the Liquidity Class
Shares of the Funds. There are no transaction fees imposed upon the purchase,
redemption or exchange of shares. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Money Nations Nations Nations
Nations Market Treasury Government Municipal
Cash Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00% .00% .00%
Shareholder Servicing Fees (After
Fee Waivers) .15% .15% .15% .15% .15%
Other Expenses (After Fee Waivers and
Expense Reimbursements) .05% .08% .06% .06% .06%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements) .35% .35% .35% .35% .35%
</TABLE>
Examples: You would pay the following expenses on a $1,000 investment in the
Liquidity Class Shares of the indicated Fund assuming (1) a 5% annual return
and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $4 $11 $20 $44
Nations Money Market Reserves $4 $11 $20 $44
Nations Treasury Reserves $4 $11 $20 $44
Nations Government Reserves $4 $11 $20 $44
Nations Municipal Reserves $4 $11 $20 $44
</TABLE>
4
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Liquidity Class Shares would
bear either directly or indirectly. Except for Nations Money Market Reserves,
whose expenses are based on estimates, the figures contained in the above
tables are based on amounts incurred during each Fund's most recent fiscal year
and have been adjusted as necessary to reflect current service provider fees.
There is no assurance that any fee waivers and/or reimbursements will continue.
In particular, to the extent Other Expenses are less than those shown, 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 fee waivers and/or reimbursements are decreased or discontinued,
the amounts in the "Examples" above may increase. The information set forth in
the foregoing table and examples relates only to the Liquidity Class Shares.
The Trust also offers Capital Class, Adviser Class and Market Class Shares of
the Funds. For a more complete description of the Funds' operating expenses,
see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Advisory Fees", "Rule 12b-1
Fees", "Shareholder Servicing Fees", "Other Expenses" and "Total Operating
Expenses" for Liquidity Class Shares of the indicated Fund would be as follows:
Nations Cash Reserves -- .30%, .60%, .25%, .14% and 1.29%, respectively;
Nations Money Market Reserves -- .30%, .60%, .25%, .19% and 1.34%,
respectively; Nations Treasury Reserves -- .30%, .65%, .25%, .15% and 1.35%,
respectively; Nations Government Reserves -- .30%, .60%, .25%, .15% and 1.30%,
respectively; and Nations Municipal Reserves .30%, .60%, .25%, .18% and 1.33%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Objectives
Each Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Money Market Reserves: Nations Money Market Reserves' investment
objective is to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value.
Nations Treasury Reserves: Nations Treasury Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Government Reserves: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Municipal Reserves: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
5
<PAGE>
How Objectives Are Pursued
Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; (v) instruments eligible for acquisition by Nations
Government Reserves (see below); and (vi) repurchase agreements and reverse
repurchase agreements involving any of the foregoing obligations. The Fund also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies.
The short-term obligations that may be purchased by the Fund include
instruments issued by trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
The Fund reserves the right to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment
of more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
Nations Money Market Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; and (v) repurchase agreements and reverse repurchase
agreements involving any of the foregoing obligations. The Fund also may invest
in guaranteed investment contracts and in securities issued by other investment
companies, consistent with its investment objective and policies. The short-term
obligations that may be purchased by the Fund include instruments issued by
trusts, partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers. The Fund 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
6
<PAGE>
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.
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 U.S.
Government Obligations, repurchase agreements and cash. For more information
concerning these instruments, see "Appendix A."
This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating the Fund must invest strictly in Prime-1 rated issues.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning these instruments, see "Appendix A."
Nations Treasury Reserves
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, STRIPS, and repurchase agreements and reverse
repurchase agreements involving such obligations. The Fund also may invest in
obligations the principal and interest of which are backed by the full faith and
credit of the United States Government, provided that the Fund shall, under
normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government and repurchase agreements secured by such obligations. The Fund
also may lend its portfolio securities to qualified institutional investors, and
may invest in securities issued by other investment companies, consistent with
its investment objective and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").1
Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Government Reserves
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Municipal Reserves
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt
from Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities that are determined to present minimal
credit risks and, that at the time of purchase, are considered to be of "high
quality" -- E.G., having a long-term rat-
- ---------------------
1 "Standard and Poor's" and "Standard & Poor's 500" are trade- marks of The
McGraw-Hill Companies, Inc.
7
<PAGE>
ing of "A" or higher from Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA
("Fitch"), S&P, Thomson BankWatch, Inc. ("BankWatch") or Moody's Investors
Services, Inc. ("Moody's") in the case of certain bonds which are lacking a
short-term rating from the requisite number of NRSROs; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in the case
of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or "VMIG-1"
by Moody's in the case of variable rate demand notes; or rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
and BankWatch are each an NRSRO. Securities that are unrated at the time of
purchase will be determined to be of comparable quality by the Adviser pursuant
to guidelines approved by the Trust's Board of Trustees. The applicable
Municipal Securities ratings are described in "Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI.
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally tax-
exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participators in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any guaranty by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees
only the pay-
8
<PAGE>
ment of principal and interest on the guaranteed security and does not
guarantee the yield or value of that security or the yield or value of shares
of that Fund.
Restraints on Investments by Money Market Funds: In order for the Funds to
value their investments on the basis of amortized cost (see "How The Funds
Value Their Shares"), investments must be in accordance with the requirements
of Rule 2a-7 under the 1940 Act, some of which are described below. A money
market fund is limited to acquiring obligations with a remaining maturity of
397 days or less, or obligations with greater maturities, provided such
obligations are subject to demand features or resets which are less than 397
days, and to maintaining a dollar-weighted average portfolio maturity of 90
days or less. Quality requirements generally limit investments to U.S. dollar
denominated instruments determined to present minimal credit risks and that, at
the time of acquisition, are rated in the first or second rating categories
(known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a money market fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to
25% of total assets may be invested in the first tier securities of a single
issuer for three business days. Additionally (except for Nations Municipal
Reserves), no more than 5% of total assets may be invested, at the time of
acquisition, in second tier securities in the aggregate, and any investment in
second tier securities of one issuer is limited to the greater of 1% of total
assets or one million dollars. Securities issued by the U.S. Government, its
agencies, authorities or instrumentalities are exempt from the quality
requirements, other than minimal credit risk. In the event that a Fund's
investment restrictions or permissible investments are more restrictive than
the requirements of Rule 2a-7, the Fund's own restrictions will govern.
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of that Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Funds may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if
as a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of each Fund's
assets. Securities purchased by Nations Money Market Reserves that are subject
to certain unconditional demand features are subject to different
diversification requirements as described in the SAI.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; (b) with respect to Nations Municipal
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Reserves, to investments in tax-exempt securities issued by governments or
political subdivisions of governments; and (c) with certain limited exceptions
with respect to Nations Money Market Reserves.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter
into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid restricted securities and other securities which are not
readily marketable do not exceed, in the aggregate, 10% of the Fund's total
assets; and (c) each Fund except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
4. Nations Money Market Reserves may not borrow money except for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing. Whenever borrowings exceed 5% of the Fund's total
assets, the Fund will not make any investments.
The foregoing percentages will apply at the time of the purchase of a security.
The investment objective and certain investment policies of each Fund are
fundamental policies of each Fund. It is also a fundamental policy of each Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Funds will be able to maintain a constant net asset value of
$1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of
a Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of
a class of shares and Nations Municipal Reserves may advertise the "tax
equivalent yield" of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a class
of shares of a Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The "tax-equivalent yield" of each class of shares of Nations Municipal
Reserves shows the level of taxable yield which, after payment of Federal
income tax in respect of such yield equals the Class's yield. The
tax-equivalent yield of a class of shares will always be higher than its yield.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield.
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In addition to Liquidity Class Shares, the Funds offer Capital Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. The Funds' annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under
the direction of its Board of Trustees. The Trust's SAI contains the names of
and general background information concerning each Trustee of Nations
Institutional Reserves.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. The Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions including, in the case
of agency transactions, financial institutions which are affiliated with
NationsBank or which have sold shares in the Funds, if the Adviser believes the
quality of the transactions and the commissions are comparable to what they
would be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at an annual rate of .30% of the average daily net assets of
each Fund.
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For the services provided and the expenses assumed pursuant to the investment
sub-advisory agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of .033% of the average daily net
assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for
certain expenses) in order to limit the total annualized operating expenses of
the Liquidity Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing
fees) of the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the advisory agreement, advisory fees at the indicated rates of the
following Funds' net assets: Nations Cash Reserves -- .15%; Nations Treasury
Reserves -- .14%; Nations Government Reserves -- .14%; and Nations Municipal
Reserves -- .12%.
For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the investment sub-advisory agreement, sub-advisory fees at the indicated
rates of the following Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- .033%.
For the fiscal period from December 1, 1997 to May 15, 1998, the Emerald Funds
paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous investment
advisory agreement, fees at the rate of .10% of the Nations Money Market
Reserves' average daily net assets (formerly called the Emerald Prime Advantage
Institutional Fund.)
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves, Nations Money Market Reserves,
Nations Treasury Reserves and Nations Government Reserves.
The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.
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
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, thereof could prevent
such entities from continuing to perform, in whole or in part, such services.
If such entities were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an administration agreement. Pursuant to the terms of the
administration agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net
asset values and dividends, preparing tax returns and financial state-
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ments and maintaining the portfolio records and certain general accounting
records for the Portfolios. For the services rendered pursuant to the
administration and co-administration agreements, Stephens and First Data are
entitled to receive a combined fee at the annual rate of up to .10% of each
Fund's average daily net assets.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens
may pay service fees or commissions to selling agents that assist customers in
purchasing Liquidity Class Shares of the Funds. See "Distribution And
Shareholder Servicing Plans."
The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders. In addition, Stephens has
established a non-cash compensation program, pursuant to which broker/dealers
or financial institutions that sell shares of the Funds may earn additional
compensation, including 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. This non-cash compensation program may be amended or terminated at
any time by Stephens.
The Bank of New York ("BNY" or the "Custodian"), located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds.In return for providing custodial services to the Nations
Funds Family, BNY is entitled to receive, 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 Funds' non-money market funds up to $10
billion and (ii) 1/2 of one basis point on the excess, including all Nations
Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares.
PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and officers);
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 NationsInstitutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and
Declaration of Trust dated January 22, 1990. The Trust's fiscal year end is
April 30. The Agreement and Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and
shareholder servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates to the Liquidity
Class Shares of the following Funds of Nations Institutional Reserves: Nations
Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal Reserves.
In addition to Liquidity Class Shares, the Funds also offer Capital Class,
Adviser Class and 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. 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. Adviser Class Shares also bear shareholder servicing
fees of up to .25% of the class's average net assets. 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. Market
Class Shares bear aggregate distribution and shareholder servicing fees of up
to .45% of the class's average net assets. A salesperson and any other person
or entity entitled to receive compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class of
shares over another in a Fund. Information regarding Capital Class, Adviser
Class and Market Class Shares of the Funds is contained in separate
prospectuses that may be obtained from the Trust's distributor. To obtain
additional information regarding the Funds' other classes of shares which may
be available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a
special meeting called upon written request of shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
As of September 1, 1998, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding
shares of the Trust and therefore could be considered to be a controlling
person of the Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI.
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The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. Further information regarding individual
Trustees may be found in the SAI.
About Your Investment
How To Buy Shares
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 Funds reserve the right in their discretion, to make Liquidity Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
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, the Transfer Agent, or their
respective agents. A purchase order must be received by Stephens, the Transfer
Agent, or their respective agents by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves). A purchase order
received after such time will not be accepted; notice thereof will be given to
the institution placing the order and any funds received will be returned
promptly to the sending institution. If federal funds are not available by 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, the Transfer Agent, or their respective
agents. The agents are responsible for transmitting orders for purchases of
Liquidity Class Shares by their customers and delivering required funds on a
timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature
after opening an account, a signature guarantee will be required. Shareholders
should be aware that by electing the telephone transaction feature, such
shareholders may be giving up a measure of security that they may have if they
were to authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
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How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves),
and payment will normally be wired the same day. The Trust reserves the right
to wire redemption proceeds within three Business Days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Fund. Redemption orders will not be accepted by Stephens,
the Transfer Agent or their respective agents after 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), for
execution on that Business Day. The redemption price is the net asset value per
share next determined after acceptance of the redemption order by Stephens, the
Transfer Agent or their respective agents. Redeemed shares are not entitled to
dividends declared on the day the redemption order is effective. A redemption
will generally result in a taxable capital gain or loss for Federal income tax
purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Liquidity Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
How To Exchange Shares
The exchange feature enables a shareholder of Liquidity Class Shares of a Fund
to acquire Liquidity Class Shares of another Fund when that shareholder
believes that a shift between Funds is an appropriate investment decision. An
exchange of Liquidity Class Shares for Liquidity Class Shares of another Fund
is made on the basis of the next calculated net asset value per share of each
Fund after the exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. For Federal income tax
purposes, an exchange will be treated in the same manner as a redemption of
shares.
The Liquidity Class of Shares exchanged must have a current value of at least
$500,000. Nations Funds
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and Stephens reserve the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
your request directly to the institution through which the original shares were
purchased.
Distribution And Shareholder Servicing Plans
Distribution Agreement and Distribution Plan: The distribution agreement and
the distribution plan adopted by the Liquidity Class Shareholders (the "Plan")
provide that the Liquidity Class Shares of the Funds may reimburse Stephens for
certain expenses incurred by Stephens in connection with the distribution of
Liquidity Class Shares of the Funds, including (i) the costs of printing
prospectuses and other similar materials for persons other than current
shareholders, (ii) the cost of complying with Federal and state laws relating
to the distribution of Liquidity Class Shares, (iii) costs of advertising
relating to Liquidity Class Shares, and (iv) expenses incurred in connection
with the promotion and sale of Liquidity Class Shares. Under the Plan, the
Trust may reimburse Stephens only for actual expenses incurred up to .30% of
the average daily net assets of the Liquidity Class Shares. Currently, the
Trust is not reimbursing Stephens for any portion of such expenses.
Unreimbursed expenses incurred by Stephens in a given year may not be recovered
by Stephens in subsequent years.
In addition to the reimbursement fee, the Plan permits the Trust to pay
Stephens an annual fee of up to .30% of the average daily net assets of the
Liquidity Class Shares of Nations Cash Reserves, Nations Government Reserves,
Nations Municipal Reserves and Nations Money Market Reserves and .35% of the
average daily net assets of the Liquidity Class Shares of Nations Treasury
Reserves which Stephens can use to compensate certain financial institutions
that provide administrative and/or distribution services to Liquidity Class
shareholders. Currently, the Trust is not compensating Stephens for providing
such services. Certain state securities laws may require those financial
institutions providing such distribution services to register as dealers
pursuant to state law.
Shareholder Servicing Plan: The shareholder servicing plan ("Servicing Plan")
permits each Fund to compensate certain banks, broker/dealers or other
financial institutions including certain affiliates of NationsBank that have
entered into shareholder servicing agreements ("Servicing Agents" also referred
to as "Agents") for certain shareholder support services that are provided by
the Servicing Agents to their customers that own Liquidity Class Shares
("Customers"). Payments under the Servicing Plan will be calculated daily and
paid monthly at a rate set from time to time by the Board of Trustees provided
that the annual rate may not exceed .25% of the average daily net asset value
of a Fund's Liquidity Class Shares. The shareholder services provided by
Servicing Agents may include general shareholder liaison services; processing
purchase, exchange and redemption requests from Customers and placing orders
with Stephens or the Transfer Agent; processing dividend and distribution
payments from a Fund on behalf of Customers; providing sales information
periodically to Customers, including information showing their positions in
Liquidity Class Shares; providing sub-accounting with respect to Liquidity
Class Shares beneficially owned by Customers or the information necessary for
sub-accounting; responding to inquiries from Customers concerning their
investment in Liquidity Class Shares; arranging for bank wires; and providing
such other similar services as may be reasonably requested.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the shareholder servicing agreements. See the
SAI for more details on the Servicing Plan.
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How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the
total value of its respective assets, less liabilities, by the number of shares
in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. Currently, the days on which the Federal Reserve Bank of New York
is closed (other than weekends) are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of
3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Municipal Reserves), on the day of declaration. Dividends are paid by each Fund
in additional shares of the same class, unless the shareholder has elected to
take such payment in cash, on the first Business Day of each month.
Shareholders may change their election by providing written notice to the
Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.
Tax Information: Each of the Funds intends to continue to qualify as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification relieves a Fund of liability for
Federal income tax to the extent its earnings are distributed in accordance
with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated
as capital gain distributions and will be taxable to the Fund's shareholders as
long-term capital gains. Noncorporate 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 a
Fund's shareholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by January 31 of the following
year will be taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state individual income
taxes when such obligations are held directly. To the extent distributions of a
Fund's net investment income is attributable to interest on such obligations,
such distributions may also be exempt from state individual 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 individual income taxation. Nations Cash
Reserves, Nations Government Reserves, Nations Treasury Reserves and Nations
18
<PAGE>
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 a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be
subject to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though
a substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which,if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding taxes.
See "Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your own 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.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Institutional Reserves. PricewaterhouseCoopers LLP is the
independent accountant to Nations Institutional Reserves. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations
Institutional Reserves accompany the financial statements and are incorporated
by reference in the SAI, which is available upon request. As of the date of
this Prospectus, no Liquidity Class Shares of Nations Money Market Reserves
have been sold. As a result, certain financial information is not available and
thus not included in this Prospectus. Shareholders of a Fund will receive
unaudited semi-annual reports describing the Fund's investment operations and
annual financial statements audited by the Funds' independent accountant.
19
<PAGE>
FOR A LIQUIDITY CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Cash Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C>
Net Asset Value,
Beginning Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment
Income 0.0539 0.0516 0.0555 0.0471 0.0273 0.0305 0.0482 0.0197
Dividends From
Net Investment
Income (0.0539) (0.0516 (0.0555 (0.0471 (0.0273 (0.0305 (0.0482 (0.0197)
Net Asset Value,
End Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.53% 5.28% 5.70% 4.81% 2.77% 3.09% 4.92% 6.44%+
Ratios To Average
Net Assets/Sup-
plemental Data:
Net Assets, End Of
Year (in 000's) $ 1,107,869 $ 419,851 $ 35,447 $ 2 $ 69,786 $ 19,411 $ 4,776 $ 10,361
Ratio Of Operating
Expenses To
Average Net
Assets 0.35%** 0.35% 0.35% 0.38% 0.55% 0.55% 0.55% 0.55%+
Ratio Of Net
Investment
Income To
Average Net
Assets 5.39% 5.17% 5.38% 4.87% 2.74% 2.96% 4.94% 6.41%+
Ratio Of Operating
Expenses To
Average Net
Assets Without
Waivers 1.29% 0.60% 0.66% 0.61% 0.65% 0.68% 0.85% 0.87%+
</TABLE>
* Nations Cash Reserves Liquidity Class Shares commenced operations on
January 9, 1991.
** The effect of the interest expense on the operating expense ratio was less
than 0.01%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
20
<PAGE>
FOR A LIQUIDITY CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income 0.0526 0.0504 0.0541 0.0462 0.0263 0.0288 0.0454 0.0173
Net Realized Gain on
Investments -- -- -- -- -- 0.0001 0.0003 --
Total from
Investment
Operations 0.0526 0.0504 0.0541 0.0462 0.0263 0.0289 0.0457 0.0173
Less: Distributions
Dividends From Net
Investment
Income (0.0526) (0.0504) (0.0541) (0.0462) (0.0263) (0.0288) (0.0454) (0.0173)
Distributions from
Net Realized
Gains -- -- -- -- -- (0.0001) (0.0003) --
Total Distributions (0.0526) (0.0504) (0.0541) (0.0462) (0.0263) (0.0289) (0.0457) (0.0173)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.38 % 5.15 % 5.57 % 4.71 % 2.67 % 2.93 % 4.64 % 5.79 %+
Ratios To Average
Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $743,410 $81,575 $11,804 $ 674 $14,227 $ 3,369 $ 2,807 $ 2,891
Ratio Of Operating
Expenses To
Average Net
Assets 0.35 % 0.35 % 0.35 % 0.49 % 0.55 % 0.55 % 0.52 % 0.55 %+
Ratio Of Net
Investment
Income To Average
Net Assets 5.26 % 5.05 % 5.35 % 4.50 % 2.67 % 2.89 % 4.62 % 5.75 %+
Ratio Of Operating
Expenses To
Average Net
Assets Without
Waivers 1.35 % 0.61 % 0.66 % 0.79 % 0.87 % 1.07 % 1.32 % 1.04 %+
</TABLE>
* Nations Treasury Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
21
<PAGE>
FOR A LIQUIDITY CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96
<S> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income 0.0528 0.0505 0.0537
Net Realized Gain on
Investments -- -- --
Total from
Investment
Operations 0.0528 0.0505 0.0537
Less: Distributions
Dividends From Net
Investment
Income (0.0528) (0.0505) (0.0537)
Distributions from
Net Realized Gain -- -- --
Total Distributions (0.0528) (0.0505) (0.0537)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00
Total Return++ 5.40 % 5.19 % 5.51 %
Ratios To Average
Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $32,773 $ 6,482 $ 129
Ratio Of Operating
Expenses To
Average Net
Assets 0.35 % 0.35 %(a) 0.35 %
Ratio Of Net
Investment
Income To Average
Net Assets 5.28 % 5.07 % 5.33 %
Ratio Of Operating
Expenses To
Average Net
Assets Without
Waivers 1.30 % 0.64 %(a) 0.68 %
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From
Investment
Operations:
Net Investment
Income 0.0453 0.0268 0.0302 0.0461 0.0176
Net Realized Gain on
Investments -- -- -- 0.0023 --
Total from
Investment
Operations 0.0453 0.0268 0.0302 0.0484 0.0176
Less: Distributions
Dividends From Net
Investment
Income (0.0453) (0.0268) (0.0302) (0.0461) (0.0176)
Distributions from
Net Realized Gain -- -- -- (0.0023) --
Total Distributions (0.0453) (0.0268) (0.0302) (0.0484) (0.0176)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 4.59 % 2.71 % 3.05 % 4.70 % 6.04 %+
Ratios To Average
Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $ 2 $259,836 $149,252 $12,486 $ 5,589
Ratio Of Operating
Expenses To
Average Net
Assets 0.40 % 0.55 % 0.55 % 0.55 % 0.55 %+
Ratio Of Net
Investment
Income To Average
Net Assets 4.27 % 2.68 % 2.71 % 4.46 % 5.86 %+
Ratio Of Operating
Expenses To
Average Net
Assets Without
Waivers 0.62 % 0.61 % 0.74 % 0.86 % 0.94 %+
</TABLE>
* Nations Government Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers was less than 0.01%.
22
<PAGE>
FOR A LIQUIDITY CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Reserves
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
04/30/98 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net Investment
Income 0.0341 0.0323 0.0347 0.0304 0.0188 0.0221 0.0346 0.0478
Dividends From Net
Investment
Income (0.0341) (0.0323) (0.0347) (0.0304) (0.0188) (0.0221) (0.0346) (0.0478)
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return++ 3.43 % 3.29 % 3.52 % 3.09 % 1.90 % 2.24 % 3.52 % 4.60 %+
Ratios To Average
Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $53,074 $54,677 $ 6,734 $ 2,591 $13,805 $10,766 $11,473 $ 8,927
Ratio Of Operating
Expenses To
Average Net
Assets 0.35%** 0.35 % 0.35 % 0.33 % 0.55 % 0.55 % 0.55 % 0.55 %+
Ratio Of Net
Investment
Income To Average
Net Assets 3.38 % 3.23 % 3.46 % 3.26 % 1.86 % 2.21 % 3.36 % 5.22 %+
Ratio Of Operating
Expenses To
Average Net
Assets Without
Waivers And/Or
Expenses
Reimbursed 1.33 % 0.67 % 0.73 % 0.69 % 0.67 % 0.76 % 0.99 % 0.81 %+
</TABLE>
* Nations Municipal Reserves Liquidity Class Shares commenced operations on
June 1, 1990.
** The effect of interest expense on the operating expense ratio was 0.02%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
23
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves and Nations Money
Market Reserves generally limit investments in bank instruments to (a) U.S.
dollar-denominated obligations of U.S. banks which have total assets exceeding
$1 billion and which are members of the Federal Deposit Insurance Corporation
(including obligations of foreign branches of such banks) or of the 75 largest
foreign commercial banks in terms of total assets; or (b) U.S. dollar-
denominated bank instruments issued by other banks believed by the Adviser to
present minimal credit risks. For purposes of the foregoing, total assets may
be determined on the basis of the bank's most recent annual financial
statements.
Nations Cash Reserves and Nations Money Market Reserves may invest up to 100%
of their assets in obligations issued by banks. Nations Cash Reserves and
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
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
24
<PAGE>
to examination by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BNY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and
agrees to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing
the proceeds in tri-party repurchase agreements. Generally, the effect of such
a transaction is that a Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities ("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, a 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. A Fund only enters into reverse repurchase
agreements (and repurchase agreements) with counterparties that are deemed by
the Adviser to be creditworthy. Reverse repurchase agreements are speculative
techniques involving leverage, and are subject to asset coverage requirements
if a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300%
of all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial
instruments to instruments that: (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) compa-
25
<PAGE>
rable in priority and security to a class of short-term instruments of the same
issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Foreign Securities: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of
foreign governments and their political subdivisions (which will be limited to
direct government obligations and government-guaranteed securities). Such
investments may subject a Fund to special investment risks, including future
political and economic developments, the possible imposition of withholding
taxes on income (including interest, dividends and disposition proceeds),
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may
be subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of
foreign issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC
26
<PAGE>
for expense and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and GICs that do not provide for
payment to a Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities. In addition,
interests in privately arranged loans acquired by Nations Cash Reserves and
Nations Money Market Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by such Fund's
Board of Trustees, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
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Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality", a Fund will require that an issuer's obligation to pay the principal
of the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or
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an installment sales contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities. Interest
payments on qualifying leases are exempt from Federal income tax.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
Municipal Securities. To the extent that municipal participation interests are
considered to be "illiquid securities" such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Funds will only commit to purchase a security on a when-issued basis
with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. The Funds will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board of Trustees. Nations
Municipal Reserves may invest more than 40% of its portfolio in securities with
put or demand features guaranteed by banks and other financial institutions.
Accordingly, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the unique risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' 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
29
<PAGE>
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
Short-Term Trust Obligations: Nations Cash Reserves and 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 a 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 a Fund must satisfy the quality and
maturity requirements generally applicable to the Funds 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
30
<PAGE>
days may be considered illiquid if there is no secondary market for such
security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate
and municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the highest three ratings used by Moody's for
corporate and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that 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
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modest, but may vary slightly from time to time because of economic
conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated F1+.
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:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
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Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the three highest investment grade ratings
used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
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".
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<PAGE>
Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)
(the "Trust") is an open-end management investment company which seeks to
provide a convenient and economical means of investing in one or more
professionally managed funds. The Trust's funds offer multiple classes of
shares; this Prospectus relates to the Market Class Shares of the following
diversified money market funds (each, a "Fund" and collectively the "Funds"):
NATIONS CASH RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY
RESERVES, NATIONS GOVERNMENT RESERVES, AND NATIONS MUNICIPAL RESERVES.
The Trust's Market Class Shares are offered to institutional investors that
meet the $250,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Market Class Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI") that has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by writing or
calling the Trust at the address or telephone number shown below. The SAI for
the Trust, dated September 1, 1998, is incorporated by reference in its entirety
into this Prospectus. 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 each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment
sub-adviser to the Funds. As used herein the term "Adviser" shall mean NBAI
and/or TradeStreet as the context may require. For additional information, see
"How The Funds Are Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Cash
Reserves
Nations Money Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Market Class Shares September 1, 1998
For Fund information call:
1-800-626-2275
Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS
FUNDS
MARKET 9/98
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
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Expenses Summary 4
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Objectives 6
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How Objectives Are Pursued 6
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General Investment Policies 9
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How Performance Is Shown 11
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How The Funds Are Managed 11
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Organization And History 14
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About Your
Investment
How To Buy Shares 15
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How To Redeem Shares 16
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How To Exchange Shares 17
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Distribution And Shareholder Servicing Plans 17
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How The Funds Value Their Shares 19
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How Dividends And Distributions Are Made;
Tax Information 19
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Financial Highlights 20
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Appendix A -- Portfolio Securities 25
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Appendix B -- Description Of Ratings 32
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:
o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.
o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation
of capital and a stable net asset value.
o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.
o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income exempt from Federal income taxes.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides management services to more than 60
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., an affiliate of NBAI, provides investment sub-
advisory services to the Funds. For more information about the investment
adviser and investment sub-adviser to the Funds, see "How The Funds Are
Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "How Objectives Are Pursued --
Restraints on Investments by Money Market Funds" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Market Class Shares is
$250,000.
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds.
The following tables summarize operating expenses for the Market Class Shares
of the Funds. There are no transaction fees imposed upon the purchase,
redemption or exchange of shares. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
Annual Operating Expenses
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Money Market Treasury Government Municipal
Cash Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Rule 12b-1 Fees (Absent Fee Waivers) .20% .20% .20% .20% .20%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After Fee Waivers and
Expense Reimbursements) .05% .10% .06% .06% .06%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .65% .65% .65% .65% .65%
</TABLE>
4
<PAGE>
Examples: You would pay the following expenses on a $1,000 investment in Market
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $7 $21 $36 $81
Nations Money Market Reserves $7 $21 $36 $81
Nations Treasury Reserves $7 $21 $36 $81
Nations Government Reserves $7 $21 $36 $81
Nations Municipal Reserves $7 $21 $36 $81
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Market Class Shares will
bear either directly or indirectly. Except for Nations Money Market Reserves,
whose expenses are based on estimates, the figures contained in the above
tables are based on amounts incurred during each Fund's most recent fiscal year
and have been adjusted as necessary to reflect current service provider fees.
There is no assurance that any fee waivers and/or reimbursements will continue.
In particular, to the extent Other Expenses are less than those shown, 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 fee waivers and/or reimbursements are decreased or discontinued,
the amounts contained in the "Examples" above may increase. The information set
forth in the foregoing table and examples relates only to the Market Class
Shares. The Trust also offers the Capital Class, Liquidity Class and Adviser
Class Shares of the Funds. Long-term shareholders in a Fund could pay more in
sales charges than the economic equivalent of the maximum front-end sales
charges applicable to mutual funds sold by members of the National Association
of Securities Dealers, Inc. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Advisory Fees", "Other
Expenses" and "Total Operating Expenses" for Market Class Shares of the
indicated Fund would be as follows: Nations Cash Reserves -- .30%, .14%, and
.89%, respectively; Nations Money Market Reserves -- .30%, .19% and .94%,
respectively; Nations Treasury Reserves -- .30%, .15% and .90%, respectively;
Nations Government Reserves -- .30%, .15% and .90%, respectively; and Nations
Municipal Reserves -- .30%, .18% and .93%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Objectives
Each Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Money Market Reserves: Nations Money Market Reserves' investment
objective is to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value.
Nations Treasury Reserves: Nations Treasury Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Government Reserves: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
Nations Municipal Reserves: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Funds are not insured against loss of principal.
How Objectives Are Pursued
Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligation issued by state and local governments, their agencies and
instrumentalities; (v) instruments eligible for acquisition by Nations
Government Reserves (see below); and (vi) repurchase agreements and reverse
repurchase agreements involving any of the foregoing obligations. The Fund also
may invest in guaranteed investment contracts and in securities issued by other
investment companies, consistent with its investment objective and policies.
The short-term obligations that may be purchased by the Fund include
instruments issued by trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
The Fund reserves the right 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
6
<PAGE>
assets in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in the
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
Nations Money Market Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligation issued
by state and local governments, their agencies and instrumentalities; and (v)
repurchase agreements and reverse repurchase agreements involving any of the
foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers. The Fund 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 Reg istered 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.
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 U.S.
Government Obligations, repurchase agreements and cash. For more information
concerning these instruments, see "Appendix A."
This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating, the Fund must invest strictly in Prime-1 rated issues.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning these instruments, see "Appendix A."
Nations Treasury Reserves
In pursuing its investment objective, the Fund will invest in direct
obligations issued by the U.S. Treasury, STRIPS, and repurchase agreements and
reverse repurchase agreements involving such obligations. The Fund also may
invest in obligations the principal and interest of which are backed by the
full faith and credit of the United States Government, provided that the Fund
shall, under normal market conditions, invest at least 65% of its total assets
in U.S. Treasury bills, notes and bonds and other instruments issued directly
by the U.S. Government and repurchase agreements secured by such obligations.
The Fund also may lend its portfolio securities to qualified institutional
investors, and may invest in securities issued by other investment companies,
consistent with its investment objective and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P")(1).
- ---------------------
(1) "Standard and Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.
7
<PAGE>
Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Government Reserves
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
Nations Municipal Reserves
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt
from Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities that are determined to present minimal
credit risks and, that at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch IBCA ("Fitch"), S&P, Thomson BankWatch, Inc.
("BankWatch") or Moody's Investors Services, Inc. ("Moody's") in the case of
certain bonds which are lacking a short-term rating from the requisite number
of NRSROs; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by
S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by D&P,
"F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable rate
demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "A-1"
or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt commercial
paper. D&P, Fitch, S&P, Moody's, and BankWatch are each an NRSRO. Securities
that are unrated at the time of purchase will be determined to be of comparable
quality by the Adviser pursuant to guidelines approved by the Trust's Board of
Trustees. The applicable Municipal Securities ratings are described in
"Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI.
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally tax-
exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed
8
<PAGE>
by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail
financially. However, loans will only be made to borrowers deemed by the
Adviser to be of good standing and when, in the judgment of the Adviser, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any guaranty by the U.S. Government, its agencies
or instrumentalities of the securities in which any Fund invests guarantees
only the payment of principal and interest on the guaranteed security and does
not guarantee the yield or value of that security or the yield or value of
shares of that Fund.
Restraints on Investments by Money Market Funds: In order for the Funds to
value their investments on the basis of amortized cost (see "How The Funds
Value Their Shares"), investments must be in accordance with the requirements
of Rule 2a-7 under the 1940 Act, some of which are described below. A money
market fund is limited to acquiring obligations with a remaining maturity of
397 days or less, or obligations with greater maturities, provided such
obligations are subject to demand features or resets which are less than 397
days, and to maintaining a dollar-weighted average portfolio maturity of 90
days or less. Quality requirements generally limit investments to U.S. dollar
denominated instruments determined to present minimal credit risks and that, at
the time of acquisition, are rated in the first or second rating categories
(known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a money market fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to
25% of total assets may be invested in the first tier securities of a single
issuer for three business days. Additionally (except for Nations Municipal
Reserves), no more than 5% of total assets may be invested, at the time of
acquisition, in second tier securities in the aggregate, and any investment in
second tier securities of one issuer is limited to the greater of 1% of total
assets or one million dollars. Securities issued by the U.S. Government, its
agencies, authorities or instrumentalities are exempt from the quality
requirements, other than minimal credit risk. In the event that a Fund's
investment restrictions or permissible investments are more restrictive than
the requirements of Rule 2a-7, the Fund's own restrictions will govern.
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be
9
<PAGE>
able to perform necessary functions. Any failure to adapt these programs in
time could hamper the Funds' operations. The Funds' principal service providers
have advised the Funds that they have been actively working on implementing
necessary changes to their systems, and that they expect that their systems
will be adapted in time, although there can be no assurance of success. Because
the Year 2000 issue affects virtually all organizations, the companies or
governmental entities in which the Funds invest could be adversely impacted by
the Year 2000 issue, although the extent of such impact cannot be predicted. To
the extent the impact on a portfolio holding is negative, a Fund's return could
be adversely affected.
Investment Limitations: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of that Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Funds may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if
as a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of each Fund's
assets. Securities purchased by Nations Money Market Reserves that are subject
to certain unconditional demand features are subject to different
diversification requirements as described in the SAI.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments; and (c) with certain limited exceptions with
respect to Nations Money Market Reserves.
3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter
into repurchase agreements and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid restricted securities and other securities which are not
readily marketable do not exceed, in the aggregate, 10% of the Fund's total
assets; and (c) each Fund except Nations Municipal Reserves may engage in
securities lending as described in this Prospectus and in the SAI.
4. Nations Money Market Reserves may not borrow money except for temporary
purposes in amounts up to one-third of the value of its total assets at the
time of such borrowing. Whenever borrowings exceed 5% of the Fund's total
assets, the Fund will not make any investments.
The foregoing percentages will apply at the time of the purchase of a security.
The investment objective and certain investment policies of each Fund are
fundamental policies of each Fund. It is also a fundamental policy of each Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Funds will be able to maintain a constant net asset value of
$1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The
term "majority of the outstanding shares" means the vote of (i) 67% or more of
a Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
10
<PAGE>
How Performance Is Shown
From time to time, the Funds may advertise the "yield" and "effective yield" of
a class of shares and Nations Municipal Reserves may advertise the "tax
equivalent yield" of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a class
of shares of a Fund is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The "tax-equivalent yield" of each class of shares of Nations Municipal
Reserves shows the level of taxable yield which, after payment of Federal
income tax in respect of such yield equals the class's yield. The
tax-equivalent yield of a class of shares will always be higher than its yield.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield.
In addition to Market Class Shares, the Funds offer Liquidity Class, Adviser
Class and Capital Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. The Funds' annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the
toll-free number indicated on the cover of this Prospectus.
How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under
the direction of its Board of Trustees. The SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.
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.
11
<PAGE>
NationsBank Corporation, the parent company of NationsBank, has signed an
agreement to merge with BankAmerica Corporation. The proposed merger is subject
to certain regulatory approvals and must be approved by shareholders of both
holding companies. The merger is expected to close in the second half of 1998.
NationsBank and NBAI have advised the Funds that the merger will not reduce the
level or quality of advisory and other services provided to the Funds.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions
with respect to and places orders for each Fund's purchases and sales of
portfolio securities and maintains records relating to such purchases and
sales. The Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions including, in the case
of agency transactions, financial institutions which are affiliated with
NationsBank or which have sold shares in the Funds, if the Adviser believes the
quality of the transactions and the commissions are comparable to what they
would be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at an annual rate of .30% of the average daily net assets of
each Fund. For the services provided and the expenses assumed pursuant to the
investment sub-advisory agreement, NBAI will pay TradeStreet sub-advisory fees,
computed daily and paid monthly, at the annual rates of .033% of the average
daily net assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for
certain expenses) in order to limit the total annualized operating expenses of
the Market Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing
fees) of the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the investment advisory agreement, advisory fees at the indicated rates
of the following Funds' net assets: Nations Cash Reserves -- .15%; Nations
Treasury Reserves -- .14%; Nations Government Reserves -- .14%; and Nations
Municipal Reserves -- .12%.
For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the investment sub-advisory agreement, sub-advisory fees at the indicated
rates of the following Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- .033%.
For the fiscal period from December 1, 1997 to May 15, 1998, the Emerald Funds
paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous investment
advisory agreement, fees at the rate of .10% of the Nations Money Market
Reserves' average daily net assets (formerly called the Emerald Prime Advantage
Institutional Fund.)
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves, Nations Money
12
<PAGE>
Market Reserves, Nations Treasury Reserves and Nations Government Reserves.
The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.
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
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations thereof, could prevent
such entities from continuing to perform, in whole or in part, such services.
If such entities were prohibited from performing any such services, it is
expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Trust pursuant to an administration agreement. Pursuant to the terms of the
administration agreement, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a co-administration agreement. Under the co-administration
agreement, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net
asset values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for
the Funds. For the services rendered pursuant to the administration and
co-administration agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees, at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens
may pay service fees or commissions to selling agents that assist customers in
purchasing Market Class Shares of the Funds. See "Distribution And Shareholder
Servicing Plans."
The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the
Funds may earn additional compensation, including 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. This non-cash compensation program may
be amended or terminated at any time by Stephens.
The Bank of New York ("BNY" or the "Custodian") located at 90 Washington
Street, New York, New York 10286, provides custodial services for the assets of
all Nations Funds. In return for providing custodial services to the Nations
Funds Family, BNY is entitled to receive, in addition to out-
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<PAGE>
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 Funds' non-money market funds up to
$10 billion and (ii) 1/2 of one basis point on the excess, including all
Nations Funds' money market funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares.
PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Market Class Shares may bear certain class specific
expenses and also bear certain additional shareholder service and distribution
costs. Any general expenses of Nations Institutional Reserves that are not
readily identifiable as belonging to a particular investment portfolio are
allocated among all portfolios in the proportion that the assets of a portfolio
bears to the assets of Nations Institutional Reserves or in such other manner
as the Board of Trustees deems appropriate.
Organization And History
The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.
Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and
Declaration of Trust dated January 22, 1990. The Trust's fiscal year end is
April 30. The Agreement and Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different
classes of each series. Each Fund is a series of the Trust. Except for
differences between classes of a Fund pertaining to distribution and
shareholder servicing arrangements, each share of each Fund represents an equal
proportionate interest in that Fund. This Prospectus relates only to the Market
Class Shares of the following Funds of Nations Institutional Reserves: Nations
Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal Reserves.
In addition to Market Class Shares, the Funds also offer Capital Class,
Liquidity Class and Adviser Class Shares. Capital Class Shares, which do not
bear distribution or shareholder servicing fees, are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary,
agency or custodial capacity and which meet the $1,000,000 minimum initial
investment requirement. Liquidity Class Shares are offered to institutional
investors which meet the $500,000 minimum initial investment requirement and to
NationsBank and its affiliates and correspondents, for the investment of their
own funds or funds for which they act in a fiduciary, agency or custodial
capacity. Liquidity Class Shares of the Funds bear aggregate distribution and
shareholder servicing fees of up to .85% of the class's average daily net
assets. Adviser Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for
14
<PAGE>
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. Adviser Class Shares also bear shareholder servicing
fees of up to .25% of the class's average net assets. A salesperson and any
other person or entity entitled to receive compensation for selling or
servicing Fund shares may receive different compensation with respect to one
particular class of shares over another in a Fund. Information regarding
Capital Class, Liquidity Class and Adviser Class Shares of the Funds is
contained in separate prospectuses that may be obtained from the Trust's
distributor. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact Nations Funds at
1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a
special meeting called upon written request of shareholders owning at least 10%
of the outstanding shares of the Trust. In the event that such a meeting is
requested, the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
As of September 1, 1998, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding
shares of the Trust and therefore could be considered to be a controlling
person of the Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI.
The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. Further information regarding individual
Trustees may be found in the SAI.
About Your Investment
How To Buy Shares
Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Market Class Shares is $250,000.
The Funds reserve the right in their discretion, to make Market Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.
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, the Transfer Agent or their
respective agents (as defined below). A purchase order must be received by
Stephens, the Transfer Agent or their respective agents by 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves). A
purchase order received after such time will not be accepted; notice thereof
will be given to the institution placing the order and any funds received will
be returned promptly to the sending institution. If federal funds are not
available by 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
15
<PAGE>
Stephens, the Transfer Agent or their respective agents. The Agents (as defined
below) are responsible for transmitting orders for purchases of Market Class
Shares by their Customers (as defined below) and delivering required funds on a
timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature
after opening an account, a signature guarantee will be required. Shareholders
should be aware that by electing the telephone transaction feature, such
shareholder may be giving up a measure of security that they may have if they
were to authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves),
and payment will normally be wired the same day. The Trust reserves the right
to wire redemption proceeds within three Business Days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely impact a Fund. Redemption orders will not be accepted by Stephens,
the Transfer Agent or their respective agents after 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), for
execution on that Business Day. The redemption price is the net asset value per
share next determined after acceptance of the redemption order by Stephens, the
Transfer Agent or their respective agents. Redeemed shares are not entitled to
dividends declared on the day the redemption order is effective. A redemption
will generally result in a taxable capital gain or loss for Federal income tax
purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Market Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock
exchange, unless other arrangements satisfactory to Nations Funds have
previously been made. Nations Funds may require any additional information
reasonably necessary to evidence that a redemption has been duly authorized.
16
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder of Market Class Shares of a Fund to
acquire Market Class Shares of another Fund when that shareholder believes that
a shift between Portfolios is an appropriate investment decision. An exchange
of Market Class Shares for Market Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Funds and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. For Federal income tax
purposes, an exchange will be treated in the same manner as a redemption of
shares.
The Market Class Shares exchanged must have a value of at least $250,000.
Nations Funds and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
your request directly to the institution through which the original shares were
purchased.
Distribution And Shareholder Servicing Plans
Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan (the "Plan") with respect to the Market Class
Shares of each Fund. Pursuant to the Plan, each Fund may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Fund's Market Class Shares. Payments under the Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trust's Board of Trustees, provided that the annual rate may not exceed
.20% of the average daily net asset value of each Fund's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Funds shall
be obligated to make any payments under the Plan that exceed the maximum
amounts payable under the Rules of Conduct of the National Association of
Securities Dealers, Inc. Certain state securities laws may require those
financial institutions providing distribution services to register as dealers
pursuant to state law.
The fees payable under the Plan are used primarily to compensate or reimburse
Stephens for distribution services provided by it, and related expenses
incurred, in connection with Market Class Shares, including payments by
Stephens to compensate or reimburse banks, broker/dealers or other financial
institutions that have entered into Sales Support Agreements with Stephens
("Selling Agents"),
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<PAGE>
for sales support services provided, and related expenses incurred, by such
Selling Agents. Payments under the Plan may be made with respect to: (i)
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by Stephens or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively; (ii)
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of Stephens or Selling Agents, attributable
to distribution or sales support activities, respectively; (iv) opportunity
costs relating to the foregoing (which may be calculated as a carrying charge
on Stephens' or Selling Agent's unreimbursed expenses incurred in connection
with distribution or sales support activities, respectively); and (v) any other
costs and expenses relating to distribution or sales support activities. The
overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or Selling Agents' offices
in connection with the sale of Fund shares, including lease costs, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communication costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Shareholder Servicing Plan: The Trustees have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to Market Class Shares of the Funds.
Pursuant to the Servicing Plan, the Trust, on behalf of each Fund, may enter
into shareholder servicing agreements ("Servicing Agreements") with banks,
broker/dealers and other financial institutions, including certain affiliates
of NationsBank ("Servicing Agents" also referred to as "Agents"). Under the
Servicing Agreements, the Servicing Agents will provide various shareholder
support services to their customers ("Customers") that are the owners of Market
Class Shares, including general shareholder liaison services; processing
purchase, exchange and redemption requests from Customers and placing orders
with Stephens or the transfer agent; processing dividend and distribution
payments from the Funds on behalf of Customers; providing information
periodically to customers showing their position in Market Class Shares;
arranging for bank wires; and providing such other similar services as may
reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Market Class Shares.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Market Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with
the investment of their assets in Market Class Shares. Customers should read
this Prospectus in light of the terms governing their accounts with their
Servicing Agents.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
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<PAGE>
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the
total value of its respective assets, less liabilities, by the number of shares
in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(12:00 noon, Eastern time, with respect to Nations Municipal Reserves), on each
Business Day. Currently, the days on which the Federal Reserve Bank of New York
is closed (other than weekends) are: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Memorial Day (observed), Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of each Portfolio are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of these
Portfolios at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of
3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Municipal Reserves), on the day of declaration. Dividends are paid by each Fund
in additional shares of the same class, unless the shareholder has elected to
take such payment in cash, on the first Business Day of each month.
Shareholders may change their election by providing written notice to the
Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on Capital Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.
Tax Information: Each of the Funds intends to continue to qualify as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification relieves a Fund of liability for
Federal income tax to the extent its earnings are distributed in accordance
with the Code.
Each Fund intends to distribute substantially all of its net investment income
each taxable year. Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated
as capital gain distributions and will be taxable to the Fund's shareholders as
long-term capital gains. Noncorporate 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 a
Fund's shareholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by January 31 of the following
year will be taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state individual income
taxes when such obligations are held directly. To the extent distributions of a
Fund's net investment income is attributable to interest on such obligations,
such distributions may also be exempt from state individual 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 individual income taxation. Nations Cash
Reserves, Nations Government Reserves, Nations Treasury Reserves and Nations
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<PAGE>
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 a Fund is exempt
from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be
subject to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though
a substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding taxes.
See "Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your own 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.
Financial Highlights
The following financial information has been derived from the audited financial
statements of Nations Institutional Reserves. PricewaterhouseCoopers LLP is the
independent accountant to Nations Institutional Reserves. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations
Institutional Reserves accompany the financial statements and are incorporated
by reference in the SAI, which is available upon request. As of the date of
this Prospectus, no Market Class Shares of Nations Money Market Reserves have
been sold. As a result, certain financial information is not available and thus
not included in this Prospectus. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
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<PAGE>
FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Cash Reserves
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0519 0.0493
Dividends from net investment income (0.0519) (0.0493)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.33% 5.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $649,503 $333,000
Ratio of operating expenses to average net assets 0.55%** 0.55%+
Ratio of net investment income to average net assets 5.19% 4.97%+
Ratio of operating expenses to average net assets without waivers 0.89% 0.80%+
</TABLE>
* Nations Cash Reserves Market Class Shares commenced operations on May 3,
1996.
** The effect of interest expense on the operating expense ratio was less than
0.01%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
21
<PAGE>
FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Reserves
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0505 0.0481
Dividends from net investment income (0.0505) (0.0481)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.18% 4.92%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $265,495 $123,396
Ratio of operating expenses to average net assets 0.55% 0.55%+
Ratio of net investment income to average net assets 5.06% 4.85%+
Ratio of operating expenses to average net assets without waivers 0.90% 0.81%+
</TABLE>
* Nations Treasury Reserves Market Class Shares commenced operations on
May 3, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
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<PAGE>
FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Reserves
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0508 0.0482
Dividends from net investment income (0.0508) (0.0482)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.20% 4.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $274,499 $218,499
Ratio of operating expenses to average net assets 0.55% 0.55%+(a)
Ratio of net investment income to average net assets 5.08% 4.87%+
Ratio of operating expenses to average net assets without waivers 0.90% 0.84%+(a)
</TABLE>
* Nations Government Reserves Market Class Shares commenced operations on
May 3, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers, was less than 0.01%.
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<PAGE>
FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Municipal Reserves
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0318 0.0301
Dividends from net investment income (0.0318) (0.0301)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 3.24% 3.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $92,000 $78,300
Ratio of operating expenses to average net assets 0.55%** 0.55%+
Ratio of net investment income to average net assets 3.18% 3.03%+
Ratio of operating expenses to average net assets without waivers 0.93% 0.87%+
</TABLE>
* Nations Municipal Reserves Market Class Shares commenced operations on
May 3, 1996.
** The effect of interest expense on the operating expense ratio was 0.02%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
24
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves and Nations Money
Market Reserves generally limit investments in bank instruments to (a) U.S.
dollar-denominated obligations of U.S. banks which have total assets exceeding
$1 billion and which are members of the Federal Deposit Insurance Corporation
(including obligations of foreign branches of such banks) or of the 75 largest
foreign commercial banks in terms of total assets; or (b) U.S. dollar-
denominated bank instruments issued by other banks believed by the Adviser to
present minimal credit risks. For purposes of the foregoing, total assets may
be determined on the basis of the bank's most recent annual financial
statements.
Nations Cash Reserves and Nations Money Market Reserves may invest up to 100%
of their assets in obligations issued by banks. Nations Cash Reserves and
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
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
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to examination by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BNY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and
agrees to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing
the proceeds in tri-party repurchase agreements. Generally, the effect of such
a transaction is that a Fund can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities ("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, a 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. A Fund only enters into reverse repurchase
agreements (and repurchase agreements) with counterparties that are deemed by
the Adviser to be creditworthy. Reverse repurchase agreements are speculative
techniques involving leverage, and are subject to asset coverage requirements
if a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300%
of all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instru- ments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial
instruments to instruments that: (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) compa-
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rable in priority and security to a class of short-term instruments of the same
issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the
Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
Foreign Securities: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of
foreign governments and their political subdivisions (which will be limited to
direct government obligations and government-guaranteed securities). Such
investments may subject a Fund to special investment risks, including future
political and economic developments, the possible imposition of withholding
taxes on income (including interest, dividends and disposition proceeds),
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may
be subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of
foreign issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and
in most foreign markets volume and liquidity are less than in the United
States. Fixed commissions on foreign securities exchanges are generally higher
than the negotiated commissions on U.S. exchanges, and there is generally less
government supervision and regulation of foreign securities exchanges, brokers,
and companies than in the United States. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of funds or other assets, or diplomatic developments
that could affect investments within those countries. Because of these and
other factors, securities of foreign companies acquired by a Fund may be
subject to greater fluctuation in price than securities of domestic companies.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the
insurance company's general or separate accounts. The insurance company then
credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are
not assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid. Repurchase
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agreements, time deposits and GICs that do not provide for payment to a Fund
within seven days after notice, and illiquid restricted securities are subject
to the limitation on illiquid securities. In addition, interests in privately
arranged loans acquired by Nations Cash Reserves and Nations Money Market
Reserves may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, the
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees
or the Adviser, acting under guidelines approved and monitored by such Fund's
Board of Trustees, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Portfolio holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General
obligation securities are secured by the issuer's pledge of its full faith,
credit, and taxing power for the payment of principal and interest. Revenue
securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by a Fund are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw
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on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
a Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," a Fund will require an issuer's obligation to pay the principal of
the note may be backed by an unconditional bank letter or line of credit,
guarantee, or commitment to lend.
Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.
Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying
Municipal Securities. To the extent that municipal participation interests are
considered to be "illiquid securities" such instruments are subject to each
Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
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A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the
purchase date and no interest accrues to the Fund before settlement. These
securities are subject to market fluctuation due to changes in market interest
rates. The Funds will only commit to purchase a security on a when-issued basis
with the intention of actually acquiring the security and will segregate
sufficient liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a
premium may be paid for put features. A premium paid will have the effect of
reducing the yield otherwise payable on the underlying security. The purpose of
engaging in transactions involving puts is to maintain flexibility and
liquidity to permit the Fund to meet redemptions and remain as fully invested
as possible in municipal securities. The Funds will limit their put
transactions to institutions which the Adviser believes present minimal credit
risk, pursuant to guidelines adopted by the Board of Trustees. Nations
Municipal Reserves may invest more than 40% of its portfolio in securities with
put or demand features guaranteed by banks and other financial institutions.
Accordingly, changes in the credit quality of these institutions could cause
losses to the Fund and affect its share price.
Although the Funds do not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities, the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that more than 25% of a Fund's total assets are invested in Municipal
Securities that are payable from the revenues of similar projects, a Fund will
be subject to the unique risks presented by such projects to a greater extent
than it would be if its assets were not so concentrated.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with
the Fund's investment objective and policies and permissible under the 1940
Act. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund bears directly in connection with its
own operations. Pursuant to an exemptive order issued by the SEC, the Nations
Funds' non-money market funds may purchase shares of Nations Funds' money
market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not
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exceed 33% of the value of its total assets, which may include cash collateral
received for securities loans. Cash collateral received by a Nations Fund may
be invested in a Nations Funds' money market fund.
Short-Term Trust Obligations: Nations Cash Reserves and 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 a 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 a Fund must satisfy the quality and
maturity requirements generally applicable to the Funds pursuant to Rule 2a-7
under the 1940 Act.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate
and municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the highest three ratings used by Moody's for
corporate and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa and A groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
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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 F1+.
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:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of
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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".
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NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
NATIONS CASH RESERVES
NATIONS MONEY MARKET RESERVES
NATIONS TREASURY RESERVES
NATIONS GOVERNMENT RESERVES
NATIONS MUNICIPAL RESERVES
CAPITAL, ADVISER, LIQUIDITY AND MARKET SHARES
SEPTEMBER 1, 1998
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the five series of Nations
Institutional Reserves (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated September 1, 1998 (each a "Prospectus" and
collectively, the "Prospectuses"). Copies of the Prospectuses may be obtained
without charge by writing Nations Funds c/o the Distributor, Stephens Inc., One
NationsBank Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by calling
Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
The Trust...................................................................1
Additional Information on Fund Investments..................................1
The Adviser ................................................................10
The Administrator and Co-Administrator......................................13
Counsel.....................................................................14
Trustees and Officers.......................................................14
Compensation Table..........................................................19
Reporting...................................................................20
Investment Limitations......................................................20
Performance Information.....................................................24
Purchase and Redemption of Shares...........................................26
Distribution and Shareholder Servicing Plans................................27
Determination of Net Asset Value............................................32
Additional Information Concerning Taxes.....................................33
Fund Transactions...........................................................38
Custodian and Transfer Agent................................................39
Description of Shares.......................................................39
Shareholder Liability.......................................................40
Limitation of Trustees' Liability...........................................40
5% Shareholders.............................................................40
Experts and Financial Information...........................................48
<PAGE>
THE TRUST
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)1, is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Agreement and Declaration of Trust permits the Trust to offer separate
series of units of beneficial interest ("shares"). Each share of each series
represents an equal proportionate interest in that series. See "Description of
Shares." This Statement of Additional Information ("SAI") relates to the Trust's
Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury Reserves,
Nations Government Reserves and Nations Municipal Reserves series (the "Funds").
Nations Cash Reserves, Nations Treasury Reserves, Nations Government Reserves
and Nations Municipal Reserves were formerly known as the Money Market Fund,
Treasury Fund, Government Fund and Tax Free Money Market Fund, respectively.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
BANK INSTRUMENTS
Obligations of U.S. commercial banks include certificates of deposit, time
deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however, time deposits cannot be traded in the
secondary market. Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods and furnish dollar
exchanges. Maturities are generally six months or less.
VARIABLE AND FLOATING-RATE INSTRUMENTS
The Funds may purchase variable-rate and floating-rate instruments as described
in the Prospectuses. If such instrument is not rated, the Adviser will consider
the earning power, cash flows, and other liquidity ratios of the issuers and
guarantors of such instruments. If the instrument is subject to a demand
feature, the Adviser will monitor its financial status to meet payment on
demand. In addition, the Funds will limit their investments in securities with
demand features where (a) the security or its issuer has received a short-term
rating from a nationally recognized statistical rating organization2; and (b)
the issuer of the demand feature, or another institution, undertakes to notify
promptly the holder of the security in the event that the demand feature is
substituted with a demand feature provided by another issuer. (Note, however,
that certain securities first issued on or before June 3, 1996 are not obligated
to meet these rating and notice requirements.) In determining average weighted
portfolio maturity, a variable-rate demand instrument issued or guaranteed by
the U.S. Government or an agency or instrumentality thereof will be deemed to
have a maturity equal to the period remaining until the instrument's next
interest rate adjustment. Other variable-rate instruments will be deemed to have
a maturity equal to the longer of the
- --------
(1) More specifically, Nations Institutional Reserves is the name under which
The Capitol Mutual Funds conducts business.
(2) As discussed in the Prospectuses, the nationally recognized statistical
rating organizations, or "NRSROs," include Duff & Phelps Credit Rating Co.,
Fitch IBCA Investors Service, Inc., Standard & Poor's Corporation, Thomson
BankWatch, Inc. and Moody's Investors Service, Inc.
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period remaining to the next interest rate adjustment or the time a Fund can
recover payment of principal as specified in the instrument. Variable- or
floating-rate instruments bear interest at a rate which varies with changes in
market rates.
VARIABLE AMOUNT MASTER DEMAND NOTES
Commercial paper which may be purchased by the Funds includes variable-amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market rates
of interest pursuant to direct arrangements between the Trust, as lender, and
the borrower. Such notes provide that the interest rate on the amount
outstanding varies on a periodic basis (E.G. daily, weekly or monthly) depending
upon a stated short-term interest rate index. Both the lender and the borrower
may have the right to reduce the amount of outstanding indebtedness at any time.
There is no secondary market for the notes. It is not generally contemplated
that such instruments will be traded. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity. A
variable-amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The Adviser will monitor on an
ongoing basis the earnings power, cash flow, and liquidity ratios of the issuers
of such instruments and will similarly monitor the ability of an issuer of a
demand instrument to pay principal and interest on demand. In addition,
variable-amount master demand notes must meet the demand feature ratings and
notice requirements set forth above.
ASSET-BACKED SECURITIES
IN GENERAL. 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-nonmortgage-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.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in repayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for rice depreciation.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an ownership
interest in pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and
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principal payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees paid to the
guarantor of such securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Such Certificates are mortgage-backed securities which represent a partial
ownership interest in a pool or mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Such
mortgage loans may have fixed or adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
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Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the mortgage assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage asset-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage asset-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the Asset-backed Securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the
4
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benefit of the holders of the asset-backed securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related asset-backed securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and Federal consumer credit laws, many of which give such
holders the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other asset-backed securities, credit card receivables are unsecured
obligations of the card holder.
While the market for asset-backed securities is becoming increasingly liquid,
the market for mortgage-backed securities issued by certain private
organizations and non-mortgage asset-backed securities is not as well developed.
As stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage asset-backed
securities to securities that are readily marketable at the time of purchase.
SECURITIES LENDING
To increase return on portfolio securities, all the Funds may lend their
portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. (As a matter of operating policy, Nations Municipal Reserves
does not lend portfolio securities.) Collateral for such loans may include cash,
securities of the U.S. Government, its agencies or instrumentalities, an
irrevocable letter of credit issued by (i) a U.S. bank that has total assets
exceeding $1 billion and that is a member of the Federal Deposit Insurance
Corporation, or (ii) a foreign bank that is one of the 75 largest foreign
commercial banks in terms of total assets, or any combination thereof. Such
loans will not be made if, as a result, the aggregate of all outstanding loans
of the Fund involved exceeds one-third of the value of its total assets taken at
fair market value. A Fund will continue to receive interest on the securities
lent while simultaneously earning interest on the investment of the cash
collateral in U.S. government securities, including cash collateral received for
securities loans. However, a Fund will normally pay lending fees to such
broker/dealers and related expenses from the interest earned on investment
collateral. Any loan may be terminated by either party upon reasonable notice to
the other party.
There may be risks of delay in receiving additional collateral or in recovering
the securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially. However, loans are made only to
borrowers deemed by the Adviser to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
Pursuant to the securities loan agreement a Fund is able to terminate the
securities loan upon notice of not more than five business days and thereby
secure the return to the Fund of securities identical to the transferred
securities upon termination of the loan.
5
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REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price (including principal and interest) on an agreed upon date
within a number of days (usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of the
underlying security.
The repurchase agreements entered into by the Funds will provide that the
underlying security at all times shall have a value at least equal to 102% of
the resale price stated in the agreement (the Adviser, the Custodian or an agent
of either such party monitors compliance with this requirement). Under all
repurchase agreements entered into by the Funds, the Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Funds could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Funds may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Funds are treated as an unsecured
creditor and required to return the underlying security to the seller's estate.
Repurchase agreements are a permissible investment for all Funds.
TAX-EXEMPT INSTRUMENTS
Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Fund can demand payment of the
obligation at all times or at stipulated dates on short notice (not to exceed 30
days) at par plus accrued interest. Such obligations are frequently secured by
letters of credit or other credit support arrangements provided by banks. The
quality of the underlying credit or of the bank, as the case may be, must, in
the Adviser's opinion be comparable to the long-term bond or commercial paper
ratings discussed in the relevant Prospectus. The Adviser will monitor the
earnings power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. The Adviser may purchase other types of tax-exempt
instruments as long as they are of a quality equivalent to the long-term bond or
commercial paper ratings discussed in the relevant Prospectus, including
municipal lease obligations and participation interests in municipal securities
(such as industrial development bonds and municipal lease purchase payments).
STAND-BY COMMITMENTS
Nations Municipal Reserves and Nations Money Market Reserves may engage in put
transactions. The Adviser has the authority to purchase securities at a price
which would result in a yield to maturity lower than that generally offered by
the seller at the time of purchase when the Funds can simultaneously acquire the
right to sell the securities back to the seller, the issuer, or a third party
(the "writer") at an agreed-upon price at any time during a stated period or on
a certain date. Such a right is generally denoted as a "standby commitment" or a
"put." The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Funds to meet redemptions and remain as
fully
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invested as possible in municipal securities. The right to put the securities
depends on the writer's ability to pay for the securities at the time the put is
exercised. The Funds will limit their put transactions to institutions which the
Adviser believes present minimum credit risks, and the Adviser will use its best
efforts to initially determine and continue to monitor the financial strength of
the sellers of the options by evaluating their financial statements and such
other information as is available in the marketplace. It may, however, be
difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any writer
is unable to honor a put for financial reasons, the Funds would each be a
general creditor (I.E., on a parity with all other unsecured creditors) of the
writer. Moreover, particular provisions of the contract between the Funds and
the writer may excuse the writer from repurchasing the securities; for example,
a change in the published rating of the underlying securities or any similar
event that has an adverse effect on the issuer's credit or a provision in the
contract that the put will not be exercised except in certain special cases, for
example, to maintain portfolio liquidity. Changes in the credit quality of banks
and other financial institutions guaranteeing puts (or similar securities
supported by credit and liquidity enhancements) could cause losses to the Funds
and affect their share price. The Funds could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Funds.
Sale of the securities to third parties or lapse of time with the put
unexercised may terminate the right to put the securities. Prior to the
expiration of any put option, the Funds could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Funds, the Funds could, of course, sell the security. The
maturity of the underlying security will generally be different from that of the
put. There is no limit to the percentage of portfolio securities that the Funds
may purchase subject to a put but the amount paid directly or indirectly for
premiums on all puts outstanding will not exceed 2% of the value of the total
assets of each Fund calculated immediately after any such put is acquired. For
the purpose of determining the "maturity" of securities purchased subject to an
option to put, and for the purpose of determining the average dollar-weighted
maturity of the Funds including such securities, the Trust will consider
"maturity" to be the first date on which it has the right to demand payment from
the writer of the put although the final maturity of the security is later than
such date.
SEPARATELY TRADED REGISTERED INTEREST AND PRINCIPAL SECURITIES
Certain of the Funds may invest in Separately Traded Registered Interest and
Principal Securities ("STRIPS") which are component parts of U.S. Treasury
Securities traded through the Federal book-entry system. The Adviser will only
purchase STRIPS that it determines are liquid or, if illiquid, do not violate a
Fund's investment policy concerning investments in illiquid securities.
Consistent with Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act"), the Adviser will only purchase STRIPS for the Funds that have
a remaining maturity of 397 days or less.
Although stripped securities may not pay interest to holders prior to maturity,
Federal income tax regulations require a Fund to recognize as interest income a
portion of the bond's discount each year. This income must then be distributed
to shareholders along with other income earned by the Fund. To the extent that
any shareholders in the Fund elect to receive their dividends in cash rather
than reinvest such dividends in additional Fund shares, cash to make these
distributions will have to be provided from the assets of the Fund or other
sources such as proceeds of sales of Fund shares and/or sales of portfolio
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securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
When-issued securities involve the purchase of debt obligations on a when-issued
basis, in which case delivery and payment normally take place within 45 days
after the date of commitment to purchase. Nations Municipal Reserves will only
make commitments to purchase obligations on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date. When-issued securities are subject to market fluctuation, and
no interest accrues to the purchaser during the period between commitment and
purchase. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing obligations on a when-issued basis is a form of
leveraging and can involve a risk that the yields available in the market when
the delivery takes place may actually be higher than those obtained in the
transaction itself. In that case there could be an unrealized loss at the time
of delivery.
Nations Municipal Reserves will instruct its Custodian to segregate and maintain
liquid assets in an amount at least equal in value to Nations Municipal
Reserves' commitments to purchase when-issued securities. If the value of these
assets declines, Nations Municipal Reserves will segregate additional liquid
assets on a daily basis so that the value of the segregated assets will be equal
to the amount of such commitments.
Nations Money Market Reserves may agree to purchase securities on a when-issued
basis or enter into a forward commitment to purchase securities. When the Fund
engages in these transactions, its custodian will segregate cash, U.S.
government securities or other high quality debt obligations equal to the amount
of the commitment. Normally, the custodian will segregate portfolio securities
to satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to segregate additional assets in order to ensure that the value of
the segregated assets remains equal to the amount of the Fund's commitment.
Because the Fund will segregate cash or liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its portfolio might be adversely affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its assets. In
the case of a forward commitment to sell portfolio securities, the Fund's
custodian will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding.
Nations Money Market Reserves will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the net asset value of the Fund
starting on the date the Fund agrees to purchase the securities. The Fund does
not earn dividends on the securities it has committed to purchase until they are
paid for and delivered on the
8
<PAGE>
settlement date. When the Fund makes a forward commitment to sell securities it
owns, the proceeds to be received upon settlement are included in the Fund's
assets. Fluctuations in the value of the underlying securities are not reflected
in the Fund's net asset value as long as the commitment remains in effect.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
absent an exemption from registration. Certain of the permitted investments of
the Funds may be restricted securities and the Adviser may invest in restricted
securities based on guidelines which are the responsibility of and are
periodically reviewed by the Board of Trustees. Under these guidelines, the
Adviser will consider the frequency of trades and quotes for the security, the
number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
Adviser intends to purchase securities that are exempt from registration under
Rule 144A and Section 4(2) promulgated under the 1933 Act. The Funds may
purchase liquid and illiquid restricted securities. Purchases of illiquid
restricted securities are subject to the Fund's investment limitations on the
purchase of illiquid securities.
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, Nations Money Market Reserves
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.
Nations Money Market Reserves 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.
Nations Money Market Reserves will acquire GICs so that they, together with
other instruments in the Fund's portfolio which are not readily marketable, will
not exceed applicable limitations on the Fund's investments in illiquid
securities. Nations Money Market Reserves will restrict its investments in GICs
to those having a term of 397 days or less. In determining average weighted
portfolio maturity, a GIC will be deemed to have a maturity equal to the period
of time remaining under the next readjustment of the guaranteed interest rate.
BORROWINGS
The Trust participates in an uncommitted line of credit provided by The
Bank of New York under a line of credit agreement (the "Agreement"). Advances
under the Agreement are taken primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. Interest on borrowings is payable at the
federal funds rate
9
<PAGE>
plus .50% on an annualized basis. The Agreement requires, among other things,
that each participating Fund maintain a ratio of no less than 4 to 1 net assets
(not including funds borrowed pursuant to the Agreement) to the aggregate amount
of indebtedness pursuant to the Agreement. Specific borrowings by a Fund under
the Agreement over the last fiscal year, if any, can by found in the Funds'
Annual Reports for the year ended April 30, 1998.
THE ADVISER
NationsBanc Advisors, Inc. ("NBAI") serves as investment adviser to the Funds,
pursuant to an investment advisory agreement ("Investment Advisory Agreement")
dated January 1, 1996, as amended February 4, 1998. TradeStreet Investment
Associates, Inc. ("TradeStreet") serves as investment sub-adviser to the Funds,
pursuant to an investment sub-advisory agreement ("Sub-Advisory Agreement")
dated January 1, 1996, as amended February 4, 1998. As used herein, "Adviser"
shall mean NBAI and/or TradeStreet as the context may require.
NBAI also serves as the investment adviser to the portfolios of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Annuity Trust,
Nations LifeGoal Funds, Inc., each a registered investment company that is part
of the Nations Funds Family. In addition, NBAI serves as the investment advisor
to Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and Nations Balanced
Target Maturity Fund, Inc., each a closed-end diversified management investment
company traded on the New York Stock Exchange. TradeStreet also serves as the
investment sub-adviser to Nations Fund Trust, Nations Fund, Inc., Nations
Government Income Term Trust 2004, Inc. and Nations Balanced Target Maturity
Fund, Inc.
NBAI and TradeStreet are each wholly owned subsidiaries of NationsBank, which in
turn is a wholly owned banking subsidiary of NationsBank Corporation, a bank
holding company organized as a North Carolina corporation.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, directors,
employees or agents, NBAI shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement became effective with respect to a Fund when
approved by the Trustees of the Trust, and thereafter continues from year to
year, provided that such continuation of the Agreement is specifically approved
at least annually by (a) (i) the Trust's Board of Trustees or (ii) the vote of
"a majority of the outstanding voting securities" of a Fund (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
the Trust's Trustees who are not parties to such Agreement or "interested
persons" (as defined in the 1940 Act) of a party to such Agreement (other than
as Trustees of the Trust), by votes cast in person at a meeting specifically
called for such purpose. The continuation of the Investment Advisory and
Sub-Advisory Agreements was last approved by the Board of Trustees at the
November 17-18, 1997 Board of Trustees meeting and the amendment to the
Investment Advisory and Sub-Advisory Agreements was approved by the Board of
Trustees at the February 4-5, 1998 Board of Trustees meeting.
The Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Fund at any time without
penalty by the Trust (by vote of the Board of
10
<PAGE>
Trustees or by vote of a majority of the outstanding voting securities of the
Fund) or by NBAI on 60 days' written notice.
The Sub-Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet or any of its officers, directors,
employees or agents, TradeStreet shall not be subject to liability to NBAI or to
the Trust for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
The Sub-Advisory Agreement became effective with respect to each Fund as of its
execution date and, unless sooner terminated, continues in full force and effect
for one year, and may be continued with respect to each Fund thereafter,
provided that the continuation of the Agreement is specifically approved at
least annually by (a) (i) the Trust's Board of Trustees or (ii) the vote of "a
majority of the outstanding voting securities" of a Fund (as defined in Section
2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of the
Trust's Trustees who are not parties to such Agreement or "interested persons"
(as defined in the 1940 Act) of a party to such Agreement (other than as
Trustees of the Trust), by votes cast in person at a meeting specifically called
for such purpose.
The Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to a Fund at any time without penalty
by the Trust (by vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund), or by NBAI, or by TradeStreet on 60
days' written notice.
The Funds, in any advertisement or sales literature, may advertise the names,
experience and/or qualifications of the portfolio manager(s) of any Fund, or if
a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
From May 1, 1994 to December 31, 1995, NationsBank, N.A. ("NationsBank") served
as investment adviser to the Funds (except Nations Money Market Fund) pursuant
to an Investment Advisory Agreement dated May 1, 1994.
For the fiscal period from May 1, 1995 to December 31, 1995, the Funds (except
Nations Money Market Fund) paid Advisory fees to NationsBank and from January 1,
1996 to April 30, 1996 the Funds (except Nations Money Market Fund) paid
Advisory fees to NBAI as follows:
<TABLE>
<CAPTION>
Fees Reimb.
NationsBank NationsBank Fees Reimb. NBAI NBAI by
Fees Paid Fees Waived by NationsBank Fees Paid Fees Waived NBAI
1996 1996 1996 1996 1996 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nations Cash
Reserves $ 88,594 $583,033 $ 0 $ 91,313 $814,949 $0
Nations Treasury
Reserves 104,637 709,688 0 59,180 598,567 0
Nations Government
Reserves 26,062 209,284 0 255 155,885 0
Nations Municipal
Reserves 0 213,304 37,928 0 117,856 0
</TABLE>
11
<PAGE>
For the fiscal year from May 1, 1996 to April 30, 1997 the Funds paid Advisory
fees to NBAI as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived NBAI
1997 1997 1997
---- ---- ----
<S> <C> <C> <C>
Nations Cash Reserves $ 2,357,981.18 $ 2,797,837.24 $0
Nations Treasury Reserves 780,877.72 1,033,412.10 0
Nations Government Reserves 277,002.18 556,881.07 0
Nations Municipal Reserves 137,642.13 437,536.71 0
</TABLE>
For the fiscal year from May 1, 1997 to April 30, 1998 the Funds paid Advisory
fees to NBAI as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived NBAI
1998 1998 1998
---- ---- ----
<S> <C> <C> <C>
Nations Cash Reserves $5,755,496 $5,510,631 $0
Nations Treasury Reserves 1,317,229 1,539,732 0
Nations Government Reserves 660,333 757,134 0
Nations Municipal Reserves 306,303 429,881 0
</TABLE>
For the fiscal period from January 1, 1996 to April 30, 1996 NBAI paid
Sub-Advisory fees to TradeStreet as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1996 1996 1996
---- ---- ----
<S> <C> <C> <C>
Nations Cash Reserves $99,689 $ 0 $ 0
Nations Treasury Reserves 72,352 0 0
Nations Government Reserves 17,175 0 0
Nations Municipal Reserves 0 12,964 0
</TABLE>
For the fiscal year from May 1, 1996 to April 30, 1997 NBAI paid Sub-Advisory
fees to TradeStreet as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1997 1997 1997
---- ---- ----
<S> <C> <C> <C>
Nations Cash Reserves $567,140 $0 $0
Nations Treasury Reserves 199,572 0 0
Nations Government Reserves 91,727 0 0
Nations Municipal Reserves 32,121 0 0
</TABLE>
12
<PAGE>
For the fiscal year from May 1, 1997 to April 30, 1998 NBAI paid Sub-Advisory
fees to TradeStreet as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1998 1998 1998
---- ---- ----
<S> <C> <C> <C>
Nations Cash Reserves $1,214,726 $0 $0
Nations Treasury Reserves 290,220 0 0
Nations Government Reserves 146,691 0 0
Nations Municipal Reserves 77,922 0 0
</TABLE>
Prior to June 29, 1996, Barnett Banks Trust Company, N.A. ("BBTC") was the
investment adviser to the Emerald Prime Advantage Institutional Fund (the
predecessor to Nations Money Market Fund). Barnett Capital Advisors, Inc.
("Barnett") assumed the responsibilities as investment adviser for the Emerald
Prime Advantage Institutional Fund on June 29, 1996 and assumed sole
responsibility for the Fund under a new advisory agreement on December 1, 1996.
For the fiscal year ended November 30, 1996 Rodney Square Management Corporation
("Rodney Square") served as the investment sub-adviser to the Fund.
For the fiscal year from December 1, 1996 to November 30, 1997 the Fund paid
Advisory fees to Barnett as follows:
<TABLE>
<CAPTION>
Net Fees Reimb. by
Fees Paid Net Barnett
1997 Fees Waived 1997 1997
---- ---- ----
<S> <C> <C> <C>
Emerald Prime Advantage Institutional Fund $89,737 $0 $55,159
</TABLE>
For the fiscal period from December 1, 1997 to May 15, 1998 the Fund paid
Advisory fees to Barnett as follows:
<TABLE>
<CAPTION>
Net Fees Reimb. by
Fees Paid Net Barnett
1998 Fees Waived 1998 1998
---- ---- ----
<S> <C> <C> <C>
Emerald Prime Advantage Institutional Fund $44,692 $0 $19,626
</TABLE>
13
<PAGE>
For the fiscal period from December 1, 1995 to November 30, 1996 BBTC and
Barnett paid Sub-Advisory fees to Rodney Square as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived Rodney Square
1996 1996 1996
---- ---- ----
<S> <C> <C> <C>
Emerald Prime Advantage Institutional Fund $191,390 $0 $744
</TABLE>
ADMINISTRATOR AND CO-ADMINISTRATOR
Stephens Inc. (the "Administrator") serves as administrator of the Trust and
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, serves as the co-administrator of the
Trust.
The Administrator and Co-Administrator serve under an administration agreement
("Administration Agreement") and co-administration agreement ("Co-Administration
Agreement"), respectively. The Administrator receives, as compensation for its
services rendered under the Administration Agreement and as agent for the
Co-Administrator for the services it provides under the Co-Administration
Agreement, a combined administrative fee, computed daily and paid monthly, at
the annual rate of up to 0.10% of the average daily net assets of each Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to, among
other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of Trustees meetings, (iv) coordinate the provision of
legal advice to the Trust with respect to regulatory matters, (v) coordinate the
preparation of reports to the Trust's shareholders and the Securities and
Exchange Commission ("SEC"), including annual and semi-annual reports, (vi)
coordinate the provision of services to the Trust by the Co-Administrator, the
Transfer Agent and the Custodian, and (vii) generally assist in all aspects of
the Trust's operations. Additionally, the Administrator is authorized to
receive, as agent for the Co-Administrator, the fees payable to the
Co-Administrator by the Trust for its services rendered under the
Co-Administration Agreement. The Administrator bears all expenses incurred in
connection with the performance of its services.
Pursuant to the Co-Administration Agreement, the Co-Administrator has agreed to,
among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Trust's reports to shareholders and the SEC, (iv)
prepare and file the Trust's federal and state tax returns, (v) perform monthly
compliance testing for the Trust, and (vi) prepare and furnish the Trust monthly
broker security transaction summaries and transaction listings and performance
information. The Co-Administrator bears all expenses incurred in connection with
the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator,
14
<PAGE>
respectively, shall not be liable to the Trust or its shareholders except in the
case of the Administrator's or Co-Administrator's, respectively, willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
For the fiscal years ended April 30, 1996, 1997 and 1998 the Funds paid combined
administrative fees as follows:
<TABLE>
<CAPTION>
Net Net Fees Net Net Fees Net Net Fees
Fees Paid Waived Fees Paid Waived Fees Paid Waived
1996 1996 1997 1997 1998 1998
---- ---- ---- ---- ---- ----
<S> <C>
Nations Cash
Reserves $ 266,305 $ 259,658 $ 206,640 $1,511,966 $ 444,739 $3,310,637
Nations
Treasury
Reserves 266,472 224,219 67,964 536,800 112,671 839,649
Nations
Government
Reserves 72,398 58,097 33,788 244,173 55,996 416,493
Nations
Municipal
Reserves 63,025 47,362 23,309 168,418 29,152 216,243
</TABLE>
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500, Washington,
D.C. 20006-1812.
TRUSTEES AND OFFICERS
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and the officers of the Trust and their principal occupations for the
last five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE COMPANY DIRECTORSHIPS
- ---------------------- ----------- -------------
<S> <C> <C>
Edmund L. Benson, III, 61 Trustee Director, President and Treasurer, Saunders & Benson, Inc. (Insurance);
Saunders & Benson, Inc. Trustee, Nations Institutional Reserves, Nations Fund Trust and Nations Annuity
728 East Main Street Trust; Director, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Suite 400 LifeGoal Funds, Inc.
Richmond, VA 23219
James Ermer, 55 Trustee Senior Vice President- Finance, CSX Corporation (transportation and natural
13705 Hickory Nut Point resources); Director, National Mine Service; Director, Lawyers Title
Midlothian, VA 23112 Corporation; Trustee, Nations Institutional Reserves, Nations Fund Trust and
Nations Annuity Trust; Director, Nations Fund, Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds, Inc.
15
<PAGE>
William H. Grigg, 65 Trustee Since June 1997, Chairman Emeritus; June 1997 to April 1994, Chairman and Chief
Duke Power Co. Executive Officer; November 1991 to April 1994, Vice Chairman, Duke Power Co.;
422 South Church Street from April 1988 to November 1991, Executive Vice President Customer Group, Duke
PB04G Power Co.; Director, Hatteras Income Securities, Inc., Nations Government
Charlotte, NC 28242-0001 Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity Fund, Inc., Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc.; Trustee, Nations
Institutional Reserves, Nations Fund Trust, and Nations Annuity Trust.
Thomas F. Keller, 66 Trustee R.J. Reynolds Industries Professor of Business Administration and Dean, Fuqua
Fuqua School of Business School of Business, Duke University; Director, LADD Furniture, Inc.; Director,
Duke University Wendy's and Mentor Funds; Director, Hatteras Income Securities, Inc., Nations
Durham, NC 27706 Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc., Nations Balanced Target Maturity Fund, Inc., Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and Nations LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves, Nations Fund Trust and Nations Annuity Trust.
16
<PAGE>
Carl E. Mundy, Jr., 63 Trustee Commandant, United States Marine Corps, from July 1991 to July 1995; Commanding
9308 Ludgate Drive General, Marine Forces Atlantic, from June 1990 to June 1991; Director, Nations
Alexandria, VA 23309 Fund, Inc., Nations Fund Portfolios, Inc. and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional Reserves, Nations Fund Trust and Nations Annuity
Trust.
James B. Sommers, 59* Trustee President, NationsBank Trust, from January 1992 to September 1996; Executive
237 Cherokee Road Vice President, NationsBank Corporation, from January 1992 to May 1997;
Charlotte, NC 28207 Principal, Bainbridge & Associates; Partner, Villa LLC; Chairman, Central
Piedmont Community College Foundation; Trustee, Central Piedmont Community
College; Board of Commissioners, Charlotte/Mecklenberg Hospital Authority;
Director, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee, Nations Institutional Reserves, Nations Fund
Trust and Nations Annuity Trust.
A. Max Walker, 76* President, Trustee Financial consultant; Formerly, President, A. Max Walker, Inc.; Director and
4580 Windsor Gate Court and Chairman of Chairman of the Board, Hatteras Income Securities, Inc., Nations Government
Atlanta, GA 30342 the Board Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity Fund, Inc., Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc.; President and Chairman of
the Board of Trustees, Nations Institutional Reserves, Nations Fund Trust, and
Nations Annuity Trust.
17
<PAGE>
Charles B. Walker, 59 Trustee Since 1989, Director, Executive Vice President, Chief Financial Officer and
Ethyl Corporation Treasurer, Ethyl Corporation (chemicals, plastics, and aluminum manufacturing);
P.O. Box 2189 since 1994, Vice Chairman, Ethyl Corporation and Vice Chairman, Chief Financial
330 South Fourth Street Officer and Treasurer, Albemarle Corporation, Director, Nations Fund, Inc.
Richmond, VA 23217 Nations Fund Portfolios, Inc. and Nations LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves, Nations Fund Trust and Nations Annuity Trust.
Thomas S. Word, Jr., 60* Trustee Partner, McGuire Woods Battle & Boothe (law); Director, Vaughan Bassett
McGuire, Woods, Battle Furniture Company, Director VB Williams Furniture Company, Inc.; Director,
& Boothe Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations LifeGoal Funds,
One James Center Inc.; Trustee, Nations Institutional Reserves, Nations Fund Trust, and Nations
Richmond, VA 23219 Annuity Trust.
18
<PAGE>
Richard H. Blank, Jr., 42 Secretary Since 1994, Vice President of Mutual Fund Services, Stephens Inc. 1990 to 1994,
Stephens Inc. Manager Mutual Fund Services, Stephens Inc. 1983 to 1990, Associate in
111 Center Street Corporate Finance Department, Stephens Inc.; Secretary, Nations Institutional
Suite 300 Reserves, Nations Fund Trust, Nations Fund, Inc., Nations Fund Portfolios,
Little Rock, AR 72201 Inc., Nations Annuity Trust and Nations LifeGoal Funds, Inc.
Michael W. Nolte, 37 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
Louise P. Newcomb, 45 Assistant Secretary Corporate Syndicate
Stephens Inc. Associate, Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
James E. Banks, 42 Assistant Secretary Since 1993, Attorney, Stephens Inc.; Associate Corporate Counsel, Federated
Stephens Inc. Investors; from 1991 to 1993, Staff Attorney, Securities and Exchange
111 Center Street Commission from 1988 to 1991
Suite 300
Little Rock, AR 72201
Richard H. Rose, 43 Treasurer Since 1994, Vice President, Division Manager, First Data Investor Services
First Data Investor Services Group, Inc., since 1988, Senior Vice President, The Boston Company Advisors,
Group, Inc. Inc.; Treasurer, Nations Institutional Reserves, Nations Fund Trust, Nations
One Exchange Place Fund, Inc., Nations Fund Portfolios, Inc., Nations Annuity Trust and Nations
Boston, MA 02109 LifeGoal Funds, Inc.
19
<PAGE>
Steven Levy, 33 Assistant Treasurer Since 1997, Vice President of Fund Accounting, First Data Investor Services
First Data Investor Services Group, Inc.; prior to 1997, Investment Operations Manager, Franklin Templeton
Group Inc. Group and Assistant Vice President of Fund Accounting, Scudder, Stevens and
One Exchange Place Clark, Inc.
Boston, MA 02109
</TABLE>
- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.
Mr. Rose serves as Treasurer to certain other investment companies for which
First Data or its affiliates serve as sponsor, distributor, administrator and/or
investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund
Trust and Nations Annuity Trust, each a registered investment company that is
part of the Nations Funds Family. Richard H. Blank, Jr., Richard H. Rose, Steven
Levy, Michael W. Nolte, Louise P. Newcomb and James E. Banks also are officers
of Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations LifeGoal Funds,
Inc., Nations Fund Trust and Nations Annuity Trust.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000
for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for each telephonic Board meeting attended. All
Trustees receive reimbursements for expenses related to their attendance at
meetings of the Board of Trustees. Officers receive no direct remuneration in
such capacity from the Trust. No person who is an officer, director, or employee
of NationsBank or its affiliates serves as an officer, Trustee, or employee of
the Trust. The Trustees and officers of Nations Funds own less than 1% of the
shares of the Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits each
access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by a Fund or (ii) was
being purchased or sold by a Fund. For purposes of the Code of Ethics, an access
person means (i) a Trustee or officer of the Trust, (ii) any employee of the
Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that the Trust's access persons, other
than its "disinterested" Trustees, submit reports to the Trust's designated
compliance person regarding transactions involving securities which are eligible
for purchase by a Fund.
20
<PAGE>
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible Trustees (the
"Retirement Plan"), each Trustee may be entitled to certain benefits upon
retirement from the Board of Trustees. Pursuant to the Retirement Plan, the
normal retirement date is the date on which the eligible Trustee has attained
age 65 and has completed at least five years of continuous service with one or
more of the open-end investment companies (the "Funds") advised by the Adviser.
If a Trustee retires before reaching age 65, no benefits are payable. Each
eligible Trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate Trustee's fees
payable by the Funds during the calendar year in which the Trustee's retirement
occurs multiplied by the number of years of service (not in excess of ten years
of service) completed with respect to any of the Funds. Such benefit is payable
to each eligible Trustee in quarterly installments for a period of no more than
five years. If an eligible Trustee dies after attaining age 65, the Trustee's
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the Trustee
if he or she had not died. The Retirement Plan is unfunded. The benefits owed to
each Trustee are unsecured and subject to the general creditors of the Funds.
Under the terms of the Nations Funds Deferred Compensation Plan for Eligible
Trustees (the "Deferred Compensation Plan"), each Trustee may elect, on an
annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the Trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring Trustees to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds. Distributions from the deferring Trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five years beginning on the date the deferring Trustee's retirement
benefits commence under the Retirement Plan. The Board of Trustees, in its sole
discretion, may accelerate or extend such payments after a Trustee's termination
of service. If a deferring Trustee dies prior to the commencement of the
distribution of amounts in his or her deferral account, the balance of the
deferral account will be distributed to his or her designated beneficiary in a
lump sum as soon as practicable after the Trustee's death. If a deferring
Trustee dies after the commencement of such distribution, but prior to the
complete distribution of his or her deferral account, the balance of the amounts
credited to his or her deferral account will be distributed to his or her
designated beneficiary over the remaining period during which such amounts were
distributable to the Trustee. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring Trustees have the status
of unsecured creditors of the Funds from which they are deferring compensation.
21
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED ANNUAL
COMPENSATION BENEFITS ACCRUED BENEFITS UPON TOTAL COMPENSATION
NAME OF PERSON FROM AS PART OF FUND RETIREMENT FROM REGISTRANT
POSITION (1) REGISTRANT (2) EXPENSES(3) PLAN & FUND COMPLEX
- ------------ --------------- ----------- ----------------- --------------
Edmund L. Benson, III $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 86,201.07 50% Def'd
Trustee
James Ermer $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 59,000.00
Trustee
William H. Grigg $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 117,533.68 100% Def'd
Trustee
Thomas F. Keller $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 116,115.17 100% Def'd
Trustee
A. Max Walker $ 11,000.00 $ 1,124.02 $ 35,000.00 $ 89,000.00
Chairman of the Board
Charles B. Walker $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 59,000.00
Trustee
Thomas S. Word $ 9,000.00 $ 1,124.02 $ 30,000.00 $ 109,255.23 100% Def'd
Trustee
James P. Sommers $ 6,750.00 $ 1,124.02 $ 30,000.00 $ 43,875.00
Trustee
Carl E. Mundy, Jr $ 8,000.00 $ 1,124.02 $ 30,000.00 $ 54,000.00
Trustee ----------- ----------- ----------- -----------
$ 79,750.00 $ 10,116.19 $275,000.00 $733,980.15
=========== =========== =========== ===========
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no
direct remuneration in such capacity from the Trust.
(2) For current fiscal year and includes estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Fund of the Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., Nations Fund Trust, Nations Annuity Trust and Nations
LifeGoal Funds, Inc., plus (ii) a fee of $1,000 for attendance at each
in-person board meeting attended and $500 for each telephonic board meeting
attended. The Trust also reimburses expenses incurred by the Trustees in
attending such meetings.
19
<PAGE>
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from ten
investment companies, including Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations Fund Trust, Nations Annuity Trust and Nations LifeGoal Funds,
Inc., that are deemed to be part of the Nations Fund "fund complex," as that
term is defined under Rule 14a-101 of the Securities Exchange Act of 1934,
as amended. Messrs. Benson, Ermer, C. Walker, Mundy and Word receive
compensation from six investment companies, including Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Fund Trust, Nations Annuity Trust and
Nations LifeGoal Funds, Inc. deemed to be part of the Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III ($53,201.00); William H. Grigg ($94,534.00); Thomas F. Keller
($93,115.00); and Thomas S. Word ($102,255.00).
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
shareholder reports to shareholders of record.
INVESTMENT LIMITATIONS
FUNDAMENTAL INVESTMENT LIMITATIONS:
Nations Cash Reserves, Nations Treasury Reserves, Nations Government Reserves
and Nations Municipal Reserves may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5% of
the value of the Fund's assets, asset coverage of at least 300% is required.
In the event that such asset coverage shall at any time fall below 300%, the
Fund shall, within three days thereafter or such longer period as the SEC may
prescribe by rules and regulations, reduce the amount of its borrowings to
such an extent that the asset coverage of such borrowings shall be at least
300%. This borrowing provision is included solely to facilitate the orderly
sale of portfolio securities to accommodate heavy redemption requests if they
should occur and is not for investment purposes. All borrowings will be
repaid before making additional investments and any interest paid on such
borrowings will reduce income.
4. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) may enter into
repurchase agreement and non-negotiable time deposits, provided that
repurchase agreements and non-negotiable time deposits maturing in more than
seven days, illiquid restricted securities and other securities which are not
readily marketable are not to exceed, in the aggregate, 10% of the Fund's
total assets and (c) the Funds (except Nations Municipal Reserves) may engage
in securities lending as described in each prospectus and in this SAI.
5. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (3) above in aggregate amounts not to exceed 10% of total assets
taken at current value at the time of the incurrence of such loan, except as
permitted with respect to securities lending.
20
<PAGE>
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits as
necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a Fund security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder and may only purchase
securities of other money market funds. Under these rules and regulations,
the Funds are prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Funds own more than 3% of
the total voting stock of the company; securities issued by any one
investment company represent more than 5% of the Fund's total assets; or
securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund. These investment
companies typically incur fees that are separate from those fees incurred
directly by the Fund. A Fund's purchase of such investment company securities
results in the layering of expenses, such that Shareholders would indirectly
bear a proportionate share of the operating expenses of such investment
companies, including advisory fees. It is the position of the Securities and
Exchange Commission's Staff that certain nongovernmental issues of CMOs and
REMICS constitute investment companies pursuant to the 1940 Act and either
(a) investments in such instruments are subject to the limitations set forth
above or (b) the issuers of such instruments have received orders from the
SEC exempting such instruments from the definition of investment company.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or Adviser of
the Trust owns beneficially more than 1/2 of 1% of the shares or securities
of such issuer and all such officers, trustees, partners and directors
owning more than 1/2 of 1% of such shares or securities together own more
than 5% of such shares or securities.
12. Invest in interest in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. Write or purchase puts, calls or combinations thereof.
14. Invest in warrants valued at lower of cost or market exceeding 5% of the
Fund's net assets. Included in that amount but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York Stock Exchange
or American Stock Exchange.
Nations Money Market Reserves may not:
1. Purchase or sell real estate, except that the Fund may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate.
21
<PAGE>
2. Acquire any other investment company or investment company security except
in connection with a merger, consolidation, reorganization or acquisition of
assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of the 1933 Act
except to the extent that the purchase of obligations directly from the
issuer thereof in accordance with the Fund's investment objective, policies
and limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts.
5. Purchase securities on margin, make short sales of securities or maintain a
short position, except that (a) this investment limitation shall not apply
to the Fund's transactions in futures contracts and related options, and (b)
the Fund may obtain short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities.
6. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may, to the extent
appropriate to its investment objective, purchase publicly traded securities
of companies engaging in whole or in part in such activities and may enter
into futures contracts and related options.
7. Make loans, except that the Fund may purchase and hold debt instruments and
enter into repurchase agreements in accordance with its investment objective
and policies and may lend portfolio securities.
8. Purchase securities of companies for the purpose of exercising control.
9. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if, immediately after such
purchase, more than 15% of its total assets would be invested in
certificates of deposit or bankers' acceptances of any one bank, or more
than 5% of the value of the Fund's total assets would be invested in other
securities of any one bank or in the securities of any other issuer, or more
than 10% of the issuer's outstanding voting securities would be owned by the
Fund; except that up to 25% of the value of the Fund's total assets may be
invested without regard to the foregoing limitations. For purposes of this
limitation, a security is considered to be issued by the entity (or
entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor when
the value of all securities issued and guaranteed by the guarantor, and
owned by the Fund, does not exceed 10% of the value of the Fund's total
assets. In accordance with the current regulations of the SEC, the Fund
intends to limit its investments in bankers' acceptances, certificates of
deposit and other securities of any one bank to not more than 5% of the
Fund's total assets at the time of purchase (rather than the 15% limitation
set forth above), provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three
business days. This practice, which is not a fundamental policy of the Fund,
could be changed only in the event that such regulations of the Securities
and Exchange Commission are amended in the future.
10. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with
22
<PAGE>
respect to: (i) instruments issued or guarantee by the United States, any
state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, (ii) instruments issued by domestic branches of U.S.
banks; and (iii) repurchase agreements secured by the instruments described
in clauses (i) and (ii); (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (c)
utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry. In construing Investment Limitation 10 in
accordance with SEC policy, to the extent permitted, U.S. branches of
foreign banks will be considered to be U.S. banks where they are subject to
the same regulation as U.S. banks.
11. Borrow money or issue senior securities, except that the Fund may borrow
from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to one-third of the value of the total assets at the
time of such borrowing or mortgage, pledge or hypothecate any assets, except
in connection with any such borrowing and then in amounts not in excess of
one-third of the value of the Fund's total assets at the time of such
borrowing. The Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding. Securities held in escrow or separate accounts in
connection with the Fund's investment practices described in this SAI or in
the Prospectuses are not deemed to be pledged for purposes of this
limitation.
Although the foregoing investment limitations would permit Nations Money Market
Reserves to invest in options, futures contracts and options on futures
contracts, the Fund does not currently intend to trade in such instruments
during the next 12 months. Prior to making any such investments, the Fund would
notify its shareholders and add appropriate descriptions concerning the
instruments to the Prospectuses and this SAI.
As stated in the Prospectuses under "General Investment Policies: Investment
Limitations," securities subject to unconditional demand features acquired by
Nations Money Market Reserves must satisfy special SEC diversification
requirements. In particular, a security that has an unconditional demand feature
or other guarantee (as defined by SEC regulations) which is issued by a person
that, directly or indirectly, does not control, and is not controlled by or
under common control with, the issuer of the security (an "Unconditional Demand
Feature") is subject to the following diversification requirements: Immediately
after the acquisition of the security, Nations Money Market Reserves may not
have invested more than 10% of its total assets in securities issued by or
subject to Unconditional Demand Features from the same person, except that the
Fund may invest up to 25% of its total assets in securities subject to
Unconditional Demand Features of persons that are rated in the highest rating
category as determined by two NRSROs (or one NRSRO if the security is rated by
only one NRSRO).
NON-FUNDAMENTAL INVESTMENT LIMITATIONS:
1. Nations Treasury Reserves may not write covered call options or purchase put
options as long as the Fund invests exclusively in U.S. Treasury
obligations, separately traded component parts of such obligations
transferable through the Federal book-entry system, and repurchase
agreements involving such obligations.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security.
23
<PAGE>
PERFORMANCE INFORMATION
From time to time the Funds may advertise the "current yield" and "effective
compound yield" of a class of shares of the respective Fund. Nations Municipal
Reserves may also advertise the "tax-equivalent yield" of a class of its shares.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of the Funds refers to the income
generated by an investment in a Fund over a seven-day period (which period will
be stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The current yield of each class of the Funds will be calculated daily based upon
the seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Funds is determined by computing the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7)]- 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on portfolio assets.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
The "tax equivalent yield" of Nations Municipal Reserves is calculated by
determining the rate of return that would have to be achieved on a fully taxable
investment to produce the after-tax equivalent of the Fund's yield, assuming
certain tax brackets for a Shareholder. See "Additional Information Concerning
Taxes - Federal Income Tax Rates" below. This tax-exempt yield is then
translated into tax-equivalent yield according to the following formula:
TAX-EQUIVALENT YIELD = ( E ) + t
-----
1 - p
E = tax-exempt yield
p = stated income tax rate
t = taxable yield
24
<PAGE>
Yields are one basis upon which investors may compare the Funds with other money
market funds; however, yield of other money market funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
Nations Cash Reserves and Nations Money Market Reserves may quote actual return
performance in advertising and other types of literature compared to indices or
averages of alternative financial products available to prospective investors.
The performance comparisons may include the average return of various bank
instruments, some of which may carry certain return guarantees offered by
leading banks and thrifts, as monitored by the Bank Rate Monitor, and those of
corporate and government security prices indices of various durations prepared
by Shearson Lehman Brothers and Salomon Brothers, Inc. These indices are not
managed for any investment goal.
Each Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds also may use
comparative performance information computed by and available from certain
industry and general market research and publications, such as Lipper Analytical
Services, Inc.
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used. CDA is a
performance evaluation service that maintains a statistical data base of
performance, as reported by a diverse universe of independently-managed mutual
funds. Interactive Data Corporation is a statistical access service that
maintains a data base of various industry indicators, such as historical and
current price/earning information and individual stock and fixed income price
and return information.
Current interest rate and yield information on governmental debt obligations of
various durations, as reported weekly by the Federal Reserve (Bulletin H.15),
may also be used. Also current rate information on municipal debt obligations or
various durations, as reported daily by the Bond Buyer, may also be used. The
Bond Buyer is published daily and is an industry accepted source for current
municipal bond market information.
Comparative information on the Consumer Price Index may also be included. This
index, as prepared by the U.S. Bureau of Labor Statistics, is the most commonly
used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return on
investment.
Tax equivalent yield assumes a Federal Tax Rate of 39.6%.
The yield of the Liquidity Class, Adviser Class and Market Class Shares of the
Funds will normally be lower than the yield of the Capital Class Shares because
Liquidity Class, Adviser Class and Market Class Shares are subject to
distribution and/or shareholder servicing expenses not charged to Capital Class
Shares.
For the 7-day period ended April 30, 1998, the yield of each Fund was as
follows:
25
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE TAX EQUIV.
YIELD W/O EFFECTIVE YIELD W/O TAX EQUIV. YIELD W/O
YIELD WAIVERS YIELD WAIVERS YIELD WAIVERS
----- ------- ----- ------- ----- -------
NATIONS CASH RESERVES
<S> <C> <C> <C> <C> <C> <C>
Capital Class 5.49% 5.25% 5.64% 5.40% N/A N/A
Liquidity Class 5.34% 4.40% 5.48% 4.54% N/A N/A
Adviser Class 5.24% 5.48% 5.37% 5.61% N/A N/A
Market Class 5.14% 4.80% 5.27% 4.93% N/A N/A
NATIONS TREASURY RESERVES
Capital Class 5.35% 5.10% 5.49% 5.24% N/A N/A
Liquidity Class 5.20% 4.20% 5.33% 4.33% N/A N/A
Adviser Class 5.10% 4.85% 5.23% 4.98% N/A N/A
Market Class 5.00% 4.65% 5.12% 4.77% N/A N/A
NATIONS GOVERNMENT RESERVES
Capital Class 5.36% 5.11% 5.51% 5.26% N/A N/A
Liquidity Class 5.21% 4.26% 5.35% 4.40% N/A N/A
Adviser Class 5.11% 4.86% 5.24% 4.99% N/A N/A
Market Class 5.01% 4.66% 5.14% 4.79% N/A N/A
NATIONS MUNICIPAL RESERVES
Capital Class 4.10% 3.82% 4.19% 3.91% 6.79% 6.33%
Liquidity Class 3.95% 2.97% 4.03% 3.05% 6.54% 4.92%
Adviser Class 3.85% 3.57% 3.93% 3.65% 6.37% 5.91%
Market Class 3.75% 3.37% 3.82% 3.44% 6.21% 5.58%
</TABLE>
The yield of the Liquidity Class, Adviser Class and Market Class Shares of each
Fund will normally be lower than the yield of the Capital Class Shares because
Liquidity Class, Adviser Class and Market Class Shares are subject to
distribution and/or shareholder servicing expenses not charged to Capital Class
Shares.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by the Distributor, the Transfer Agent or
their respective agents. A purchase order must be received by the Distributor,
the Transfer Agent or their respective agents, by 3:00 p.m., Eastern time (12:00
noon, Eastern time, with respect to Nations Municipal Reserves). A purchase
order received after such time will not be accepted; notice thereof will
26
<PAGE>
be given to the institution placing the order and any funds received will be
returned promptly to the sending institution. If federal funds are not available
by the close of regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m., Eastern time), the order will be canceled. The purchase
price is the net asset value per share next determined after acceptance of the
order by the Distributor, the Transfer Agent or their respective agents.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within five Business Days after receiving a redemption
order if, in the judgment of the NationsBank, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by the Distributor, the
Transfer Agent or their respective agents after 3:00 p.m., Eastern time (12:00
noon, Eastern time, with respect to Nations Municipal Reserves) for execution on
that Business Day. The redemption price is the net asset value per share next
determined after acceptance of the redemption order by the Distributor, the
Transfer Agent or their respective agents.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of each Fund next
determined after receipt by the Distributor of the redemption order.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
shareholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of a Fund for any period during which the Exchange, NationsBank, the
Distributor, the Administrator, the Co-Administrator, and/or the Custodian are
not open for business.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
LIQUIDITY CLASS
The Trust has adopted a distribution plan (the "Liquidity Class Distribution
Plan" or the "Distribution Plan") for the Liquidity Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of the
Trust and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). The Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and the purposes
of such expenditures be furnished to and reviewed by the Trustees. The Liquidity
Class Plan may not be amended to increase materially the amount which may be
spent thereunder without approval by a majority of the outstanding Liquidity
Class Shares of the Trust. All material amendments of the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
Liquidity Class Shares of each Fund bear the costs of their distribution fees as
provided in a budget approved annually and reviewed quarterly by the Trustees of
the Trust, including those Trustees who are
27
<PAGE>
not interested persons and have no financial interest in the Liquidity Class
Plan or any related agreements. The budget will be in an amount not to exceed
.30% of the average daily net assets of Liquidity Class Shares of each Fund and
the Distributor will be reimbursed only for its actual expenses incurred during
a fiscal year. The Distributor will also receive an additional fee of up to .30%
of the average daily net assets of Liquidity Class Shares of each Fund (.35%
with respect to Nations Treasury Reserves) which the Distributor can use to
compensate certain financial institutions which provide administrative and/or
distribution related services to Liquidity Class shareholders. These services
may include establishing and maintaining customer accounts and records;
aggregating and processing purchase and redemption requests from customers;
placing net purchase and redemption orders with the Distributor or transfer
agent; automatically investing customer account cash balances; providing
periodic statements to customers; arranging for wires; answering customer
inquiries concerning their investments; assisting customers in changing dividend
options, account designations, and addresses; performing sub-accounting
functions; processing dividend payments from a Trust on behalf of customers; and
forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, and dividend distribution, and tax notices) to these
customers with respect to investments in the Trust. It is possible that an
institution may offer different classes of Shares to its customers and thus
receive different compensation with respect to different classes of Shares.
In addition, the Trustees have approved a shareholder servicing plan with
respect to Liquidity Class Shares of the Funds (the "Liquidity Class Servicing
Plan" or the "Servicing Plan"). Pursuant to the Servicing Plan, a Fund may
compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Shareholder Servicing Agreements with the Trust
("Servicing Agents") for certain activities or expenses of the Servicing Agents
in connection with shareholder services that are provided by the Servicing
Agents. The Servicing Plan provides that payments under the Servicing Plan will
be calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Trustees, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Liquidity Class Shares of each Fund.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents under the Servicing Plan may include: (i) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(iii) processing dividend and distribution payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in shares; (v) arranging for bank wires; (vi) responding to customers'
inquiries concerning their investment in shares; (vii) providing sub-accounting
with respect to shares beneficially owned by customers or providing the
information to the Trust necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plan or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Trust may reasonably request to the
extent such Servicing Agents are permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Liquidity Class Distribution Plan and Liquidity Class
Servicing Plan (together, the "Liquidity Class Plans") are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor and/or the Trust under the
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<PAGE>
Liquidity Class Plans which exceed the total of the payments made to the Selling
Agents and/or Servicing Agents by the Distributor or the Trust and reimbursed by
the Funds pursuant to the Liquidity Class Plans. Any such excess expenses may be
recovered in future years, so long as the Liquidity Class Plans are in effect.
Because there is no requirement under the Liquidity Class Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Liquidity Class
Plans be continued from year to year, such excess amount, if any, does not
constitute a liability to a Fund, or the Distributor, or the Trust. Although
there is no legal obligation for the Fund to pay expenses incurred by the
Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Liquidity Class Plans if for any
reason the Liquidity Class Plans are terminated, the Trustees will consider at
that time the manner in which to treat such expenses.
For the fiscal year ended April 30, 1998, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Liquidity Class Shares in the
following amounts:
<TABLE>
<CAPTION>
NET
SHAREHOLDER
NET SERVICING
12B-1 FEES PLAN FEES
LIQUIDITY PAID TO PAID TO NET FEES
CLASS SHARES STEPHENS NATIONSBANK WAIVED NET FEES PAID
------------ -------- ----------- ------ -------------
<S> <C> <C> <C> <C>
Nations Cash Reserves $0 $824,607 $3,848,168 $824,607
Nations Treasury Reserves 0 378,710 1,893,550 378,710
Nations Government Reserves 0 50,890 237,487 50,890
Nations Municipal Reserves 0 80,309 374,774 80,309
</TABLE>
Such distribution expenses for each Fund were attributable to the cost of
marketing the Funds.
MARKET CLASS
The Trust has adopted a distribution plan (the "Market Class Distribution Plan"
or the "Distribution Plan") for the Market Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of the
Trust and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). The Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and the purposes
of such expenditures be furnished to and reviewed by the Trustees, and the
Distribution Plan may not be amended to increase materially the amount which may
be spent thereunder without approval by a majority of the outstanding Market
Class Shares of the Trust. All material amendments of the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of a Fund's Market Class Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a
29
<PAGE>
Sales Support Agreement relating to the Market Class Shares with the Distributor
("Selling Agents"). Payments under a Fund's Market Class Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Board of
Trustees provided that the annual rate may not exceed 0.20% of the average daily
net asset value of each Fund's Market Class Shares.
The fees payable under the Market Class Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Market
Class Plan may be made with respect to (i) preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively; (ii) commissions, incentive compensation
or other compensation to, and expenses of, account executives or other employees
of the Distributor or Selling Agents, attributable to distribution or sales
support activities, respectively; (iii) overhead and other office expenses of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; (iv) opportunity costs relating to the foregoing
(which may be calculated as a carrying charge in the Distributor's or Selling
Agents' unreimbursed expenses incurred in connection with distribution or sales
support activities, respectively); and (v) any other costs and expenses relating
to distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Trustees have approved a shareholder servicing plan with
respect to Market Class Shares of the Funds (the "Market Class Servicing Plan"
or the Servicing Plan"). Pursuant to the Servicing Plan, a Fund may compensate
or reimburse banks, broker/dealers or other financial institutions that have
entered into Shareholder Servicing Agreements with the Trust for certain
activities or expenses of the Servicing Agents in connection with shareholder
services that are provided by the Servicing Agents. The Servicing Plan provides
that payments under the Servicing Plan will be paid at a rate or rates set from
time to time by the Board of Trustees, provided that the annual rate may not
exceed 0.25% of the average daily net asset value of the Market Class Shares
beneficially owned by the Servicing Agents' clients.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents under the Servicing Plan may include: (i) aggregating and
processing purchase and redemption requests for shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in shares pursuant to specific or pre-authorized instructions;
(iii) processing dividend and distribution payments from the Trust on behalf of
customers; (iv) providing information periodically to customers showing their
positions in shares; (v) arranging for bank wires; (vi) responding to customers'
inquiries concerning their investment in shares; (vii) providing sub-accounting
with respect to shares beneficially owned by customers or providing the
information to the Trust necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications from the Trust (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plan or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Trust may
30
<PAGE>
reasonably request to the extent such Servicing Agents are permitted to do so
under applicable statutes, rules or regulations.
The shareholder servicing plan with respect to the Market Class Distribution
Plan and the Market Class Servicing Plan (collectively, the "Plans") will
continue in effect only so long as such continuance is approved at least
annually by (i) a majority of the Board of Trustees, and (ii) a majority of the
Qualified Trustees, pursuant to a vote cast in person at a meeting called for
the purpose of voting on the Plan. Each Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Shares of such Fund. All material amendments to a
Plan require the approval of a majority of the Board of Trustees and the
Qualified Trustees. The Plans require that quarterly written reports of the
amounts spent under the Plans and the purposes of such expenditures be furnished
to, and reviewed by, the Trustees.
For the fiscal year ended April 30, 1998, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Market Class Shares in the
following amounts:
<TABLE>
<CAPTION>
NET
SHAREHOLDER
NET SERVICING
12B-1 FEES PLAN FEES
MARKET PAID TO PAID TO NET FEES
CLASS SHARES STEPHENS NATIONSBANK WAIVED NET FEES PAID
------------ -------- ----------- ------ -------------
<S> <C> <C> <C> <C>
Nations Cash Reserves $0 $1,700,215 $485,773 $1,700,215
Nations Treasury Reserves 0 710,566 203,019 710,566
Nations Government Reserves 0 787,919 225,120 787,919
Nations Municipal Reserves 0 336,304 96,088 336,304
</TABLE>
ADVISER CLASS
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Shareholder
Servicing Plan for the Adviser Class Shares of each Fund (the "Adviser Class
Servicing Plan"). Under the Adviser Class Servicing Plan, the Trust may enter
into Shareholder Servicing Agreements with broker/dealers, banks and other
financial institutions ("Servicing Agents") pursuant to which the Servicing
Agents will provide shareholder support services to their customers who
beneficially own Adviser Class Shares in the Funds. The Adviser Class Servicing
Plan permits the Trust to pay Servicing Agents a fee not exceeding 0.25% of the
average daily net asset value of the Adviser Class Shares beneficially owned by
the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the Adviser
Class Servicing Plan may include: (i) aggregating and processing purchase and
redemption requests for such Adviser Class Shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in such Adviser Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Trust on behalf of customers; (iv) providing information periodically
to customers showing their positions in such Adviser Class Shares; (v) arranging
for bank wires; (vi) responding to customers' inquiries concerning their
investment in such Adviser Class Shares; (vii) providing sub-accounting with
respect to such Adviser Class Shares beneficially owned by
31
<PAGE>
customers or the information necessary for sub-accounting; (viii) if required by
law, forwarding shareholder communications (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (ix) forwarding to customers proxy statements and
proxies containing any proposals regarding the Adviser Class Servicing Plan or
related agreements; (x) general shareholder liaison services; and (xi) providing
such other similar services as the Trust reasonably request to the extent the
Servicing Agents are permitted to do so under applicable statutes, rules or
regulations.
The Adviser Class Servicing Plan also provides that to the extent any portion of
the fees payable under such Plan is deemed to be for services primarily intended
to result in the sale of Fund shares, such fees are deemed approved and may be
paid pursuant to the Servicing Plan and in accordance with Rule 12b-1 under the
1940 Act.
For the fiscal year ended April 30, 1998, the Funds paid 12b-1 fees to Stephens,
and shareholder servicing fees to NationsBank for Adviser Class Shares in the
following amounts:
<TABLE>
<CAPTION>
NET NET
12B-1 FEES SHAREHOLDER SERVICING
ADVISER PAID TO PLAN FEES PAID TO
CLASS SHARES STEPHENS NATIONSBANK NET FEES PAID
------------ -------- ----------- -------------
<S> <C> <C> <C>
Nations Cash Reserves $0 $1,293,612 $1,293,612
Nations Treasury Reserves 0 606,210 606,210
Nations Government Reserves 0 117,013 117,013
Nations Municipal Reserves 0 73,041 73,041
</TABLE>
The Adviser Class Servicing Plan will continue in effect only so long as such
continuance is approved at least annually by (i) a majority of the Board of
Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a vote cast
in person at a meeting called for the purpose of voting on the Adviser Class
Servicing Plan. The Adviser Class Servicing Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Adviser Class Shares of such Fund. All material
amendments to the Adviser Class Servicing Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Adviser Class
Servicing Plan requires that quarterly written reports of the amounts spent
under the Adviser Class Servicing Plan and the purposes of such expenditures be
furnished to, and reviewed by, the Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Funds will be determined as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Municipal
Reserves), on each day the Exchange is open for business.
Net asset value per share of each Fund is calculated by adding the value of its
securities and other assets, subtracting its liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method pursuant to Rule 2a-7 under the 1940 Act, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation,
32
<PAGE>
it may result in periods during which value, as determined by this method, is
higher or lower than the price each Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of each
Fund may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by each Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in each Fund would be able to obtain
a somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in each Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The Funds use of amortized cost and the maintenance of the Funds net asset value
at $1.00 are permitted by regulations promulgated by the SEC under the 1940 Act,
provided that certain conditions are met. The Trust will maintain a
dollar-weighted average maturity in the Funds of 90 days or less, will not
purchase any instrument having a remaining maturity of more than 397 days, and
will limit its investments to those U.S. dollar-denominated instruments which
are permitted investments under SEC regulations. The regulations also require
the Trustees to establish procedures which are reasonably designed to stabilize
the net asset value per share at $1.00 for the Funds. Such procedures include
the determination of the extent of deviation, if any, of the Funds current net
asset value per share calculated using available market quotations from the
Funds amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to Shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. Such actions may include
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations. In addition, if the Funds incur a significant loss
or liability, the Trustees have the authority to reduce pro rata the number of
shares of the Funds in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends while each other Fund must
annually distribute at least 90% of its investment company taxable income.
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction with
Prospectus section entitled "Tax Information." The Prospectuses of the Funds
describes generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning income taxes.
GENERAL
The Trust intends to continue to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for Federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to each Fund, rather
than to the Trust as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each Fund will not be taxed on its net investment
income and capital gains distributed to its shareholders.
33
<PAGE>
Qualification as a regulated investment company under the Code requires, among
other things, that (a) each Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 7, 1997.
The Funds must also distribute or be deemed to distribute to their shareholders
at least 90% of their net investment income (including, for this purpose, net
short-term capital gain) earned in each taxable year. In general, these
distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Funds intend to pay out substantially all
of their net investment income and net realized capital gains (if any) for each
year.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than to the
extent of its tax-exempt interest income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. Each Fund
intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio securities
by a Fund will generally be capital gains and losses. Such gains and losses will
ordinarily be long-term capital gains and losses if the securities have been
held by the Fund for more than 12 months at the time of disposition of the
securities (however, see "Capital Gain Distributions" below).
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
34
<PAGE>
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by a Fund as capital gain distributions will
be taxed to shareholders as long-term term capital gains (to the extent such
dividends do not exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to the shareholders not later than 60 days after the
close of the Fund's taxable year.
OTHER DISTRIBUTIONS
Although dividends of net investment income will be declared daily based on each
Fund's daily earnings, for Federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For Federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year a Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and profits
will be deemed to have constituted a dividend. It is expected that each Fund's
net income, on an annual basis, will equal the dividends declared during the
year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to redemption (including a redemption
in-kind) or exchanges will ordinarily result in a taxable capital gain or loss,
depending on the amount received for the Shares (or are deemed to receive in the
case of an exchange) and the cost of your Shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge or load on a
new purchase of shares of the Fund or a different regulated investment company,
the sales charge or load previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charge or load does
not exceed the reduction in sales charge or load on the new purchase) for the
purpose of determining the amount of gain or loss on the disposition, but will
be treated as having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of shares of the Fund will
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder holds Fund shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. In addition, if a shareholder receives a
designated capital gain distribution with respect to any Fund share and such
Fund share is held for six months or less, then (unless otherwise disallowed)
any loss on the sale or exchange of that Fund share will be treated as a
long-term capital loss to the extent of the designated capital gain
distribution. The foregoing recharacterization and disallowance rules do not
apply to losses realized under a periodic redemption plan.
FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable to
ordinary income is 39.6% (marginal tax rates may be higher for some individuals
to reduce or eliminate the benefit of exemptions
35
<PAGE>
and deductions); the maximum individual marginal tax rate generally applicable
to net capital gains is 20%; and the maximum corporate tax rate applicable to
ordinary income and net capital gains is 35% (marginal tax rates may be higher
for some corporations to reduce or eliminate the benefit of lower marginal
income tax rates). Naturally, the amount of tax payable by an individual or
corporation will be affected by a combination of tax laws covering, for example,
deductions, credits, deferrals, exemptions, sources of income and other matters.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by the Fund to a
nonresident alien individual, foreign trust (I.E., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to Federal withholding tax (at a rate of 30% or,
if an income tax treaty applies, at the lower treaty rate, if any). Such tax
withheld is generally not refundable. Withholding will not apply if a dividend
paid by the Fund to a foreign shareholder is "effectively connected" with a U.S.
trade or business (or, if an income tax treaty applies, is attributable to a
U.S. permanent establishment of the foreign shareholder), in which case the
reporting and withholding requirements applicable to U.S. persons will apply.
Distributions of net capital gains are generally not subject to tax withholding
applicable to foreign shareholders.
NEW REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the backup withholding, U.S.
income tax withholding and information reporting rules applicable to foreign
shareholders. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Among other
things, the New Regulations will permit the Funds to estimate the portion of
their distributions qualifying as capital gain distributions for purposes of
determining the portion of such distributions paid to foreign shareholders which
will be subject to U.S. income tax withholding. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
BACKUP WITHHOLDING
The Trust may be required to withhold, subject to certain exemptions, at a rate
of 31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless a shareholder
certifies that the Taxpayer Identification Number ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or the shareholder is
subject to backup withholding. Such tax withheld does not constitute any
additional tax imposed on the shareholder, and may be claimed as a tax payment
on the shareholder's Federal income tax return. An investor must provide a valid
TIN upon opening or reopening an account. Failure to furnish a valid TIN to the
Trust could subject the investor to penalties imposed by the IRS.
ADDITIONAL CONSIDERATIONS FOR NATIONS MUNICIPAL RESERVES
If at least 50% of the value of a regulated investment company's total assets at
the close of each quarter of its taxable years consists of obligations the
interest on which is exempt from Federal income tax, it will qualify under the
Code to pay "exempt-interest dividends." Nations Municipal Reserves intends to
36
<PAGE>
so qualify and is designed to provide investors with a high level of income
exempt from Federal income tax.
The portion of total dividends paid by Nations Municipal Reserves with respect
to any taxable year that constitutes exempt-interest dividends will be the same
for all shareholders receiving dividends during such year. Distributions of
capital gains or from net investment income not attributable to interest on the
Fund's tax-exempt obligations will not constitute exempt-interest dividends and
will be taxable to its shareholders. The exemption of interest income derived
from investments in tax-exempt obligations for Federal income tax purposes may
not result in a similar exemption under the laws of a particular state or local
taxing authority.
Not later than 60 days after the close of its taxable year, Nations Municipal
Reserves will notify its shareholders of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income under Section 103 of the Code
received by the Fund during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. Interest on
indebtedness incurred to purchase or carry shares of Nations Municipal Reserves
will not be deductible to the extent that the Fund's distributions are exempt
from federal income tax.
In addition, the Federal alternative minimum tax ("AMT") rules ensure that at
least a minimum amount of tax is paid by taxpayers who obtain significant
benefit from certain tax deductions and exemptions. Some of these deductions and
exemptions have been designated "tax preference items" which must be added back
to taxable income for purposes of calculating AMT. Among the tax preference
items is tax-exempt interest from "private activity bonds" issued after August
7, 1986. To the extent that Nations Municipal Reserves invests in private
activity bonds, its shareholders who pay AMT will be required to report that
portion of Fund dividends attributable to income from the bonds as a tax
preference item in determining their AMT. Shareholders will be notified of the
tax status of distributions made by Nations Municipal Reserves. Persons who may
be "substantial users" (or "related persons" of substantial users) of facilities
financed by private activity bonds should consult their tax advisors before
purchasing shares in Nations Municipal Reserves. Furthermore, shareholders will
not be permitted to deduct any of their share of Nations Municipal Reserves'
expenses in computing their AMT. With respect to a corporate shareholder of
Nations Municipal Reserves, exempt-interest dividends paid by the Fund is
included in the corporate shareholder's "adjusted current earnings" as part of
its AMT calculation, and may also affect its Federal "environmental tax"
liability. As of the printing of this SAI, individuals are subject to an AMT at
a maximum rate of 28% and corporations at a maximum rate of 20%. Shareholders
with questions or concerns about AMT Rates should consult their tax advisors.
Shares of Nations Municipal Reserves would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts
are generally tax-exempt and, therefore, would not benefit from the exempt
status of dividends from the Fund. Such dividends may ultimately be taxable to
the beneficiaries when distributed to them.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds may
involve sophisticated tax rules that may result in income or gain recognition by
the Fund without corresponding current cash receipts. Although the Funds will
seek to avoid significant noncash income, such noncash income could be
recognized by the Funds, in which case the Funds may distribute cash derived
from other sources in order to meet the minimum distribution requirements
described above.
37
<PAGE>
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal tax considerations generally
affecting investments in the Funds. Each investor is urged to consult his or her
tax advisor regarding specific questions as to federal, state, local and foreign
taxes.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Adviser is responsible for placing the orders
to execute transactions for the Funds. In placing orders, it is the policy of
the Trust to seek to obtain the best net results taking into account such
factors as price (including the applicable dealer spread), the size, type and
difficulty of the transaction involved, the firm's general execution and
operational facilities, and the firm's risk in positioning the securities
involved. While the Adviser generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available.
The money market securities in which the Funds invest are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Trust will primarily consist of dealer spreads
and underwriting commissions.
The Trust does not expect to use one particular dealer, but subject to the
Trust's policy of seeking the best net results, dealers who provide supplemental
investment research to the Adviser may receive orders for transactions by the
Trust. Information so received will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Investment Advisory
Agreement, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information.
The Funds may execute brokerage or other agency transactions through affiliated
persons for a commission, in conformity with the 1940 Act, the Securities
Exchange Act of 1934 and rules of the SEC. These rules require that commissions
paid to the affiliated person by the Trust for exchange transactions not exceed
"usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to such affiliated persons and will review these procedures
periodically.
During the fiscal year ended April 30 1997, the Trust paid $0 in aggregate
brokerage commissions. None of the Trust's Funds held any securities of
companies among the Trust's "regular brokers or dealers" or parents of its
"regular brokers or dealers".
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BNY"), 90 Washington Street, New York, New York 10286,
serves as custodian ("Custodian") for the securities and cash of each Fund.
NationsBank of Texas, N.A. served as
38
<PAGE>
Custodian for the securities and cash of each Fund for the fiscal year ended
April 30, 1998. As custodian, BNY, maintains custody of the Funds' securities,
cash and other property, delivers securities against payment upon sale and pays
for securities against delivery upon purchase, makes payments on behalf of the
Funds for payments of dividends, distributions and redemptions, endorses and
collects on behalf of the Funds all checks, and receives all dividends and other
distributions made on securities owned by the Funds. For such services, BNY, is
entitled to receive, 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
Funds non-money market Funds up to $10 billion and (ii) 1/2 of one basis point
on the excess, including all Nations Funds money market Funds
For the fiscal year ended April 30, 1998, the Trust paid $26,231 in aggregate
fees to NationsBank of Texas, N.A. for its services as custodian for the shares
of each Fund.
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Funds. Under the transfer agency agreement, the
transfer agent maintains the shareholder account records for the Trust, handles
certain communications between shareholders and the Trust, and distributes
dividends and distributions payable by the Trust to shareholders, and produces
statements with respect to account activity for the Trust and its shareholders
for these services.
DESCRIPTION OF SHARES
The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of shares of the Funds and different classes of each Fund. Each Fund
currently offers Capital Class Shares, Liquidity Class Shares, Adviser Class
Shares and Market Class Shares. Except for differences between classes of a Fund
pertaining to distribution arrangements, each share of a Fund represents an
equal proportionate interest in that Fund with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the Funds.
Shareholders have no preemptive rights. The Agreement and Declaration of Trust
provides that the Trustees of the Trust may create additional Funds or classes
of shares. All consideration received by the Trust for shares of any additional
series and all assets in which such consideration is invested would belong to
that Fund and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
The Funds use the so-called "equalization accounting method" to allocate a
portion of earnings and profits to redemption proceeds. This method permits a
fund to achieve more balanced distributions for both continuing and departing
shareholders. Continuing shareholders should realize tax savings or deferrals
through this method, and departing shareholders will not have their tax
obligations change. Although using this method will not affect a Fund's total
returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
Each Fund or class of a Fund will vote separately on matters pertaining solely
to such Fund or class. Such matters include matters relating to a Fund's
investment advisory agreement or a class' distribution plan. All Funds will vote
as a whole on matters affecting all Funds such as the election of Trustees and
the appointment of the Trust's independent accountant.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally
39
<PAGE>
liable as partners for the obligations of the trust. Even if, however, the Trust
were held to be a partnership, the possibility of the shareholders' incurring
financial loss for that reason appears remote because the Trust's Agreement and
Declaration of Trust contains an express disclaimer of shareholder liability for
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by or on
behalf of the Trust or the Trustees, and because the Agreement and Declaration
of Trust provides for indemnification out of the Trust property for any
shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Agreement and Declaration of Trust provides that a Trustee shall be liable
only for his own willful defaults and, if reasonable care has been exercised in
the selection of officers, agents, employees or investment advisers, shall not
be liable for any neglect or wrongdoing of any such person. The Agreement and
Declaration of Trust also provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with actual
or threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Agreement
and Declaration of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
However, nothing in the Agreement and Declaration of Trust shall protect or
indemnify a Trustee against any liability for his willful misfeasance, bad
faith, gross negligence or reckless disregard of his duties.
5% SHAREHOLDERS
The following table sets forth certain information concerning each person
who, to the Trust's knowledge, is a record owner of 5% or more of the Shares of
a class of a Fund. Information is given as of August 13, 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NAME AND ADDRESS HELD OF RECORD ONLY
- ---------------- -------------------
<S> <C>
NATIONS CASH RESERVES
- ---------------------
Adviser Class Shares
- --------------------
Bankers Trust FBO 11.97%
Tenneco Salary - 193024
PO Box 9014
Church Street Station
New York, NY 10008
Capital Class Shares
- --------------------
NationsBank of Texas, N.A. 28.24%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
The Bank of New York 27.41%
As Agent for Its Securities
Lending Customers
101 Barclay Street
New York, NY 10286
40
<PAGE>
Liquidity Class Shares
- ----------------------
NationsBank of Texas, N.A. - Agent FBO 27.78%
Global Finance Sweep Customers
Attn: Steven Edwards
1201 Main Street
TX1-609-21-04
Dallas, TX 75202
Casita LP 9.77%
c/o Lori Gerken
3390 Peachtree St. Suite 1200
Atlanta, GA 30326
Market Class Shares
- -------------------
NationsBank SWP Disbursement NC
NationsBank Sweep/Autoborrow 98.73%
First Citizens Bldg.
128 S. Tryon St. NC1-006-08-03
NATIONS MONEY MARKET RESERVES
- -----------------------------
Adviser Class Shares
- --------------------
Central Carolina Bank 99.99%
Attn: Cash Management
111 Corcoran Street 2nd FLR MO 2-1
Durham, NC 27701
41
<PAGE>
Capital Class Shares
- --------------------
Barnett Bank 81.29%
Attn: Bill Lendzian
PO Box 40200 FL9-100-03-09
Jacksonville, FL 32203-0200
NYT Capital Inc. 16.22%
Attn: Mehal Naik
229 W 43rd St.
New York, NY 10036-3913
Liquidity Class
- ---------------
Stephens Inc. 100.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
Market Class
- ------------
Stephens Inc. 100.00%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
NATIONS TREASURY RESERVES
- -------------------------
Adviser Class Shares
- --------------------
Central Carolina Bank 16.37%
Attn: Cash Management
111 Corcoran Street, 2nd Floor, MO 2-1
Durham, NC 21101
Group Health Plan Inc. 10.06%
Attn: Catinas Warren
940 West Port Plaza Suite 300
St. Louis, MO 63146-3108
Longstreet LLC 7.35%
1899 L Street, 9th Floor
Washington, D.C. 20036
Hare & Co., Bank of New York 7.25%
Attn: STIF/Master Note
One Wall Street, 2nd Floor
New York, NY 10286
42
<PAGE>
Capital Class Shares
- --------------------
America Online Inc. 40.13%
Attn: Hilda Cosme
22000 AOL Way
Dulles, Va. 20166
Barnett Bank 20.91%
Attn: Bill Lendzian
PO Box 40200 FL9-100-03-09
Jacksonville, FL 32203-0200
America Online Inc. 10.09%
Money Market Account
Attn: Catherine Thomas
22000 AOL Way
Sterling, Va. 20166-9302
NationsBank of Texas, N.A. 7.70%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Liquidity Class Shares
- ----------------------
NationsBank of Texas, N.A. - Agent FBO 29.26%
Global Finance Sweep Customers
Attn: Steven Edwards
1201 Main Street
TX1-609-21-04
Dallas, TX 75202
Mutiwave Investments Inc. 17.74%
c/o Siegfried & Co.
1201 North Market St. Suite 1601
Wilmington , DE 19801
ECT Securities Corp. 7.92%
c/o Enron Corp.
Attn: Donna Lowry EB 2881
P.O. Box 1188
Houston, TX 77251-1188
Unisite Inc. 5.41%
Escrow Account
3450 Bushwood Park Dr. Suite 250
Tampa, FL 33618
43
<PAGE>
Market Class Shares
- -------------------
NationsBank SWP Disbursement NC
NationsBank Sweep/Autoborrow 99.67%
First Citizens Bldg.
128 S. Tryon St. NC1-006-08-03
NATIONS GOVERNMENT RESERVES
- ---------------------------
Adviser Class Shares
- --------------------
Hunt Memorial Hospital Dist. 18.41%
PO Box 1059
Greenville, TX 75403
Collins & 194th Associated LTD 12.31%
By Chicago Title Insurance Co. as
Escrow Agent
c/o State Accounting
1818 S. Australian Ave. Suite 210
West Palm Beach, FL 33409
Savvis Holdings Corporation 12.11%
7777 N. Bonhomme, Suite 1501
St. Louis, MO 63105
North Kansas City Hospital 10.26%
Master Account
Attn: Mike Wright
2800 Clay Edwards Drive
No. Kansas City, MO 64116
St. Lukes Hospital 8.96%
Building Depreciation Fund
10920 Elm Ave.
Kansas City, MO 64134
Hunt Memorial Hospital District 8.60%
Construction Fund
PO Box 1059
Greenville, TX 75403
Capital Class Shares
- --------------------
Dallas ISD I&S Fund 32.12%
3700 Ross Ave. Room 218C
Dallas, TX 75204
Dallas ISD I&S General Fund 28.99%
3700 Ross Ave. Room 218C
Dallas, TX 75204
44
<PAGE>
AARP Financial Services 9.79%
Attn: Linda Wiegano
601 E Street, NW
Washington, D.C. 20049
Dallas ISD 8.78%
Contractual Obligations
3700 Ross Ave. Room 218C
Room 218C
Dallas, TX 75204
The Nemours Foundation 5.90%
Attn: Ron Malloy
1650 Prudential Dr. Suite 300
Jacksonville, FL 32201-8147
NationsBank of Texas, N.A. 5.38%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
Liquidity Class Shares
- ----------------------
Texas New Mexico Power Company 58.23%
PO Box 2943
Fort Worth, TX 76113
TNP Enterprises Inc. 13.35%
4101 International Plaza
Fort Worth, TX 76109
Targeted Marketing Systems, Inc. 11.38%
PO Box 50708
Dallas, TX 75250
Market Class Shares
- -------------------
NationsBank SWP Disbursement NC
NationsBank Sweep/Autoborrow 100.00%
First Citizens Bldg.
128 S. Tryon St. NC1-006-08-03
NATIONS MUNICIPAL RESERVES
- --------------------------
Adviser Class Shares
- --------------------
Phil McDaniel 13.52%
51 Water Street
Saint Augustine, FL 32084-2888
45
<PAGE>
Timothy A. Braswell 11.22%
17925 E. Village Circle
Tequesta, FL 33469
Laf/Tjf IV 10.46%
12805 SW 84th Avenue Road
Miami, FL 33156
ReeF Exploration 8.47%
1901 N. Central EXPWY
Richardson, TX 75080
Donald Alan Burns 6.92%
1021 N. Ocean Blvd.
Palm Beach, FL 33480
Dennis H. Gaffke and Margaret A. Gaffke 6.76%
JTWROS
8931 E. 74th St.
Tulsa, OK 74133-3105
HJ Freede Inc. 6.03%
316 NW 39th Street
Oklahoma City, OK 73118
Rehabcare Group 5.92%
Attn: Brenda Mason
7733 Forsyth Blvd. Suite 1700
Clayton, MO 63105
Capital Class Shares
- --------------------
NationsBank of Texas, N.A. 71.95%
Attn: David Thayer
1401 Elm Street, 11th Floor
Dallas, TX 75202
William K. Warren Jr. Trust B-3 8.34%
Attn: John-Kelly C. Warren TTEE
6585 South Yale Ave.
The William Medical Bldg. 9th Fl.
Tulsa, OK 74136-8373
Stephen Kelly Warren Trust A 6.04%
Attn: Steven Kelly Warren TTEE
6585 South Yale Ave.
The William Medical Bldg. 9th Fl.
Tulsa, OK 74136-8373
46
<PAGE>
Liquidity Class Shares
- ----------------------
Vintec Company 21.07%
1501 Malloy Lane
P.O. Box 1258
Murfreesboro, TN 37133
Joseph Falconite and Betty Falconite 18.06%
JTWROS
700 Lambiance #202
Naples, FL 34108
NQGR&G Options Inc. 15.56%
Qualified Intermediary For
AGM Nevada Inc.
c/o Robert M. Ercole Esq.
One South St. - Suite 2700
Baltimore, MD 21202
Fedco Management Services, Inc. 13.90%
Attn: Odelin Fernandez
631 71st Street
Miami Beach, FL 33141
Glenn S. Collins III and Kathleen Collins 7.68%
JTROWS
PO Drawer 11310
College Station, TX 77842-1310
Washoe Company 6.54%
PO Box 2086
Austin, TX 78768
Market Class Shares
- -------------------
NationsBank SWP Disbursement NC
NationsBank Sweep/Autoborrow 100.00%
First Citizens Bldg.
128 S. Tryon St. NC1-006-08-03
</TABLE>
EXPERTS AND FINANCIAL INFORMATION
The Board of Trustees has selected PricewaterhouseCoopers LLP, with offices at
160 Federal Street, Boston, MA 02110, to serve as independent accountant to
Nations Institutional Reserves. KPMG Peat Marwick LLP, Two Nationwide Plaza,
Columbus, Ohio 43215 were the independent auditors for the Emerald Prime
Advantage Institutional Fund (predecessor to Nations Money Market Reserves) for
the fiscal period December 1, 1997 through May 15, 1998 and for the fiscal year
ended November 30, 1997. Certain financial information which appears in the
Prospectuses and the financial statements has been audited by the accountants.
47
<PAGE>
The Annual Report for the fiscal year ended April 30, 1998, is hereby
incorporated by reference in this SAI. The Annual Reports for the Emerald Prime
Advantage Institutional Fund (the predecessor to Nations Money Market Reserves)
for the fiscal period December 1, 1997 through May 15, 1998 and for the fiscal
year ended November 30, 1997 are also incorporated herein by reference. These
Annual Reports will be sent free of charge with this SAI to any shareholder who
requests this SAI.
48
<PAGE>
NATIONS INSTITUTIONAL RESERVES
FILE NOS. 33-33144; 811-6030
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements, including:
Portfolio of Investments for April 30, 1998
Statements of Assets and Liabilities for April 30, 1998
Statements of Operations for the year ended April 30, 1998
Statements of Changes in Net Assets for the years ended April 30,
1998 and April 30, 1997
Financial Highlights
Notes to Financial
Statements Report of Independent Accountants, dated June 18, 1998
Audited financial statements for Emerald Prime
Advantage Institutional Fund:
Schedule of Portfolio Investments for May 15, 1998
Statement of Assets and Liabilities for May 15, 1998
Statement of Operations for the period ended May 15, 1998
Statements of Changes in Net Assets
Notes to Financial Statements
Independent Auditors' Report, dated July 1, 1998
Included in Part C:
Consent of Independent Accountants
Independent Auditors' Consent
(b) Additional Exhibits
(1)(a) Declaration of Trust, dated January 22, 1990, filed herewith.
(1)(b) Certificate pertaining to classification of shares, dated
February 5, 1998, filed herewith.
(2) By-Laws, dated January 22, 1990, filed herewith.
<PAGE>
(3) Not Applicable
(4) Not Applicable
(5)(a) Investment Advisory Agreement with
Nationsbanc Advisors, Inc. incorporated by
reference to Post-Effective Amendment No. 17
(5)(b) Sub-Advisory Agreement with TradeStreet
Investment Associates, Inc. Incorporated by Reference to
Post-Effective Amendment No. 17
(6) Distribution Agreement with Stephens, Inc., dated May 1,
1994, filed herewith.
(7) Not Applicable
(8) Mutual Fund Custody and Sub-Custody Agreement with
NationsBank of Texas, N.A. as Custodian and The Bank of New
York as Sub-Custodian Incorporated by Reference to
Post-Effective Amendment No. 20
(9)(a) Administration Agreement with Stephens Inc., dated May 1,
1994, filed herewith.
(9)(b) Co-Administration Agreement with The Boston
Company Advisors, Inc., dated May 1, 1994, filed
herewith.
(9)(c) Transfer Agency Agreement with First Data,
filed herewith.
(10) Opinion and Consent of Counsel is filed herewith.
(11)(a) Consent of Independent Accountants - PricewaterhouseCoopers
LLP, filed herewith.
(11)(b) Independent Auditors' Consent - KPMG Peat Marwick LLP,
filed herewith.
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15)(a) Distribution Plan for Liquidity Class Shares,
filed herewith.
(15)(b) Shareholder Servicing Plan for Adviser Class
Shares, filed herewith.
2
<PAGE>
(15)(c) Form of Shareholder Servicing Agreement for
Adviser Class Shares, filed herewith.
(15)(d) Shareholder Servicing Plan for Market Class
Shares, filed herewith.
(15)(e) Form of Shareholder Servicing Agreement for
Market Class Shares, filed herewith.
(15)(f) Distribution Plan for Market Class Shares,
filed herewith.
(15)(g) Form of Brokerage Agreement Incorporated, dated
November 18, 1994, filed herewith.
(15)(h) Shareholder Servicing Plan for Liquidity
Class Shares, filed herewith.
(16) Performance Quotation Computation Incorporated by
Reference to Post-Effective Amendment No. 6
(17) Not Applicable
(18) Plan entered into by Registrant pursuant to Rule 18f-3
under the Investment Company Act of 1940, dated April 12,
1995, filed herewith.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
Registrant is controlled by its Board of Trustees.
Item 26. NUMBER OF HOLDERS OF SECURITIES:
As of August 27, 1998
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- ---------------
Shares of beneficial interest, without par value --
Nations Cash Reserves -- Capital Class 213
Nations Cash Reserves -- Liquidity Class 255
Nations Cash Reserves -- Adviser Class 698
Nations Cash Reserves -- Market Class 3
Nations Treasury Reserves -- Capital Class 41
Nations Treasury Reserves -- Liquidity Class 80
Nations Treasury Reserves -- Adviser Class 398
Nations Treasury Reserves -- Market Class 3
Nations Government Reserves -- Capital Class 17
Nations Government Reserves -- Liquidity Class 19
3
<PAGE>
Nations Government Reserves -- Adviser Class 84
Nations Government Reserves -- Market Class 2
Nations Municipal Reserves -- Capital Class 11
Nations Municipal Reserves -- Liquidity Class 23
Nations Municipal Reserves -- Adviser Class 49
Nations Municipal Reserves -- Market Class 2
Nations Money Market Reserves -- Capital Class 4
Nations Money Market Reserves -- Liquidity Class 6
Nations Money Market Reserves -- Adviser Class 2
Nations Money Market Reserves -- Market Class 1
Item 27. INDEMNIFICATION
Article VIII of the Agreement of Declaration of Trust filed as Exhibit 1
to the Registration Statement is incorporated by reference. Indemnification of
Registrant's administrators, principal underwriter, custodian and transfer agent
is provided for, respectively, in the:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with First Data Investors
Services Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Mutual Fund Custody and Sub-Custody Agreement with
NationsBank as Custodian and The Bank of New York as
Sub-Custodian; and
5. Transfer Agency Agreement with First Data Investor Services Group,
Inc.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
4
<PAGE>
(a) To the knowledge of Registrant, none of the directors or officers of
NationsBanc Advisors, Inc. ("NBAI"), the adviser to the Registrant's portfolios,
or TradeStreet Investment Associates, Inc. ("TradeStreet") the sub-investment
adviser, except those set forth below, is or has been, at any time during the
past two calendar years, engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain directors and officers
also hold various positions with, and engage in business for, the company that
owns all the outstanding stock (other than directors' qualifying shares) of NBAI
or TradeStreet, respectively, or other subsidiaries of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriters:
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal underwriter for Nations Fund Trust, Nations Annuity Trust,
Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc.,
Overland Express Funds, Inc., Stagecoach Inc., Stagecoach Funds, Inc. and
Stagecoach Trust and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust, Life & Annuity Trust and Master
Investment Portfolio, all of which are registered open-end management investment
companies, and has acted as principal underwriter for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and the Managed Balanced Target Maturity Fund, Inc.
closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records:
5
<PAGE>
(1) NationsBanc Advisors, Inc., One NationsBank Plaza, Charlotte, North
Carolina 28255 (records relating to its function as Investment Adviser).
(2) TradeStreet Investment Associates, Inc., One NationsBank Plaza,
Charlotte, North Carolina 28255 (records relating to its function as
Sub-Investment Adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator).
(5) First Data Investor Services Group, Inc., One Exchange Place, 53
State Street, Boston, Massachusetts 02109 (records relating to its functions as
Co-Administrator).
(6) First Data Investor Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as Transfer
Agent).
(7) NationsBank, 1401 Elm Street, Dallas, Texas 75202 (records relating
to its function as Custodian).
(8) The Bank of New York, 90 Washington Street, New York, New York 10286
(records relating to its function as Sub-Custodian).
Item 31. Management Services
None
Item 32. Undertakings
(a) To call a meeting of Shareholders for the purpose of voting upon the
question of the removal of a Trustee(s) when requested in writing to do so by
the holders of at least 10% of Registrant's outstanding shares and in connection
with each meeting to comply with the provision of Section 16(c) of the
Investment Company Act of 1940 relating to Shareholder communications.
(b) To furnish each prospective person to whom a prospectus will be
delivered with a copy of the Registrant's latest annual report to shareholders,
when such annual report is issued containing information called for by Item 5A
of Form N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Capitol Mutual
Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby
6
<PAGE>
given that this Registration Statement has been executed on behalf of the Trust
by an officer of the Trust as an officer and by its Trustees as trustees and not
individually and the obligations of or arising out this Registration Statement
are not binding upon any of the Trustees, officers, or Shareholders individually
but are binding only upon the assets and property of the Trust.
7
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Little
Rock, State of Arkansas on the 27th day of August, 1998.
THE CAPITOL MUTUAL FUNDS
By: *
------------------------------------------
A. Max Walker
President and Chairman of the Board of Trustees
By: /s/Richard H. Blank, Jr.
--------------------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
<S> <C>
SIGNATURES TITLE DATE
---------- ----- ------
* President and Chairman August 27, 1998
----------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
* Treasurer August 27, 1998
- ----------------------------------- Vice President
(Richard H. Rose) (Principal Financial and Accounting Officer)
* Trustee August 27, 1998
- -----------------------------------
(Edmund L. Benson, III)
* Trustee August 27, 1998
- -----------------------------------
(James Ermer)
* Trustee August 27, 1998
- -----------------------------------
(William H. Grigg)
* Trustee August 27, 1998
- -----------------------------------
(Thomas F. Keller)
* Trustee August 27, 1998
- -----------------------------------
(Carl E. Mundy, Jr.)
* Trustee August 27, 1998
- -----------------------------------
(Charles B. Walker)
* Trustee August 27, 1998
- -----------------------------------
(Thomas S. Word)
* Trustee August 27, 1998
- -----------------------------------
(James P. Sommers)
/s/ Richard H. Blank, Jr.
- --------------------------
Richard H. Blank, Jr.
</TABLE>
8
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ------------
<TABLE>
<CAPTION>
<S> <C>
EX-27.011 Financial Data Schedules -- Nations Cash Reserves -- Adviser Class Shares
EX-27.012 Financial Data Schedules -- Nations Cash Reserves -- Capital Class Shares
EX-27.013 Financial Data Schedules -- Nations Cash Reserves -- Liquidity Class Shares
EX-27.014 Financial Data Schedules -- Nations Cash Reserves -- Market Class Shares
EX-27.021 Financial Data Schedules -- Nations Treasury Reserves -- Adviser Class Shares
EX-27.022 Financial Data Schedules -- Nations Treasury Reserves -- Capital Class Shares
EX-27.023 Financial Data Schedules -- Nations Treasury Reserves -- Liquidity Class Shares
EX-27.024 Financial Data Schedules -- Nations Treasury Reserves -- Market Class Shares
EX-27.031 Financial Data Schedules -- Nations Government Reserves -- Adviser Class Shares
EX-27.032 Financial Data Schedules -- Nations Government Reserves -- Capital Class Shares
EX-27.033 Financial Data Schedules -- Nations Government Reserves -- Liquidity Class Shares
EX-27.034 Financial Data Schedules -- Nations Government Reserves -- Market Class Shares
EX-27.041 Financial Data Schedules - Nations Municipal Reserves -- Adviser Class Shares
EX-27.042 Financial Data Schedules -- Nations Municipal Reserves -- Capital Class Shares
EX-27.043 Financial Data Schedules - Nations Municipal Reserves -- Liquidity Class Shares
EX-27.044 Financial Data Schedules -- Nations Municipal Reserves - Market Class Shares
EX-27.051 Financial Data Schedules -- Emerald Prime Advantage Institutional Fund - Institutional Shares
EX-99.B1(a) Declaration of Trust
EX-99.B1(b) Certificate pertaining to classification of shares
EX-99.B2 By-Laws
</TABLE>
9
<PAGE>
EX-99.B6 Distribution Agreement with Stephens, Inc.
EX-99.B9(a) Administration Agreement with Stephens, Inc.
EX-99.B9(b) Co-Administration Agreement with The Boston Company Advisers, Inc.
EX-99.B9(c) Transfer Agency Agreement with The Shareholder Services Group, Inc.
EX-99.B10 Opinion and Consent of Counsel
EX-99.B11(a) Consent of Independent Accountants
EX-99.B11(b) Independent Auditors' Consent
EX-99.B15(a) Distribution Plan for Liquidity Class Shares
EX-99.B15(b) Shareholder Servicing Plan for Adviser Class Shares
EX-99.B15(c) Form of Shareholder Servicing Agreement for Adviser Class Shares
EX-99.B15(d) Shareholder Servicing Plan for Market Class Shares
EX-99.B15(e) Form of Shareholder Servicing Agreement for Market Class Shares
EX-99.B15(f) Distribution Plan for Market Class Shares
EX-99.B15(g) Form of Brokerage Agreement
EX-99.B15(h) Shareholder Servicing Plan for Liquidity Class Shares
EX-99.B18 Rule 18f-3 Plan
10
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>043
<NAME>Nations Cash Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 5,470,825,219
<INVESTMENTS-AT-VALUE> 5,470,825,219
<RECEIVABLES> 21,423,913
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 545,211
<TOTAL-ASSETS> 5,492,794,343
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,446,428
<TOTAL-LIABILITIES> 11,446,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 672,413,228
<SHARES-COMMON-STOCK> 672,413,228
<SHARES-COMMON-PRIOR> 247,550,891
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 672,416,503
<DIVIDEND-INCOME> 10,550,254
<INTEREST-INCOME> 205,144,487
<OTHER-INCOME> 0
<EXPENSES-NET> 11,340,619
<NET-INVESTMENT-INCOME> 204,354,122
<REALIZED-GAINS-CURRENT> 30,016
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 204,384,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,433,020)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,993,186,298
<NUMBER-OF-SHARES-REDEEMED> (3,588,637,815)
<SHARES-REINVESTED> 20,313,854
<NET-CHANGE-IN-ASSETS> 2,796,713,697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,296)
<GROSS-ADVISORY-FEES> 11,266,127
<INTEREST-EXPENSE> 11,433
<GROSS-EXPENSE> 24,495,828
<AVERAGE-NET-ASSETS> 517,444,991
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>041
<NAME>Nations Cash Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 5,470,825,219
<INVESTMENTS-AT-VALUE> 5,470,825,219
<RECEIVABLES> 21,423,913
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 545,211
<TOTAL-ASSETS> 5,492,794,343
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,446,428
<TOTAL-LIABILITIES> 11,446,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,051,544,137
<SHARES-COMMON-STOCK> 3,051,544,137
<SHARES-COMMON-PRIOR> 1,684,234,691
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,051,559,014
<DIVIDEND-INCOME> 10,550,254
<INTEREST-INCOME> 205,144,487
<OTHER-INCOME> 0
<EXPENSES-NET> 11,340,619
<NET-INVESTMENT-INCOME> 204,354,122
<REALIZED-GAINS-CURRENT> 30,016
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 204,384,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (122,110,028)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,029,345,684
<NUMBER-OF-SHARES-REDEEMED> (25,726,548,498)
<SHARES-REINVESTED> 64,512,260
<NET-CHANGE-IN-ASSETS> 2,796,713,697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,296)
<GROSS-ADVISORY-FEES> 11,266,127
<INTEREST-EXPENSE> 11,433
<GROSS-EXPENSE> 24,495,828
<AVERAGE-NET-ASSETS> 2,202,417,431
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>042
<NAME>Nations Cash Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 5,470,825,219
<INVESTMENTS-AT-VALUE> 5,470,825,219
<RECEIVABLES> 21,423,913
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 545,211
<TOTAL-ASSETS> 5,492,794,343
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,446,428
<TOTAL-LIABILITIES> 11,446,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,107,863,820
<SHARES-COMMON-STOCK> 1,107,863,820
<SHARES-COMMON-PRIOR> 419,851,922
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,107,869,219
<DIVIDEND-INCOME> 10,550,254
<INTEREST-INCOME> 205,144,487
<OTHER-INCOME> 0
<EXPENSES-NET> 11,340,619
<NET-INVESTMENT-INCOME> 204,354,122
<REALIZED-GAINS-CURRENT> 30,016
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 204,384,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,596,913)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,183,907,272
<NUMBER-OF-SHARES-REDEEMED> (7,514,186,096)
<SHARES-REINVESTED> 18,290,722
<NET-CHANGE-IN-ASSETS> 2,796,713,697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,296)
<GROSS-ADVISORY-FEES> 11,266,127
<INTEREST-EXPENSE> 11,433
<GROSS-EXPENSE> 24,495,828
<AVERAGE-NET-ASSETS> 549,738,226
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>044
<NAME>Nations Cash Reserves Market Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 5,470,825,219
<INVESTMENTS-AT-VALUE> 5,470,825,219
<RECEIVABLES> 21,423,913
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 545,211
<TOTAL-ASSETS> 5,492,794,343
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,446,428
<TOTAL-LIABILITIES> 11,446,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 649,500,010
<SHARES-COMMON-STOCK> 649,500,010
<SHARES-COMMON-PRIOR> 333,000,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,720
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 649,503,179
<DIVIDEND-INCOME> 10,550,254
<INTEREST-INCOME> 205,144,487
<OTHER-INCOME> 0
<EXPENSES-NET> 11,340,619
<NET-INVESTMENT-INCOME> 204,354,122
<REALIZED-GAINS-CURRENT> 30,016
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 204,384,138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,214,161)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,504,300,000
<NUMBER-OF-SHARES-REDEEMED> (1,187,800,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,796,713,697
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,296)
<GROSS-ADVISORY-FEES> 11,266,127
<INTEREST-EXPENSE> 11,433
<GROSS-EXPENSE> 24,495,828
<AVERAGE-NET-ASSETS> 485,775,028
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>053
<NAME>Nations Treasury Reserve Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 1,634,898,260
<INVESTMENTS-AT-VALUE> 1,634,898,260
<RECEIVABLES> 1,918,310
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 76,643
<TOTAL-ASSETS> 1,636,890,042
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,167,003
<TOTAL-LIABILITIES> 159,167,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 222,764,327
<SHARES-COMMON-STOCK> 222,764,396
<SHARES-COMMON-PRIOR> 154,260,925
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (27,840)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 222,760,213
<DIVIDEND-INCOME> 2,100,213
<INTEREST-INCOME> 51,320,613
<OTHER-INCOME> 0
<EXPENSES-NET> 3,573,258
<NET-INVESTMENT-INCOME> 49,847,568
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 49,847,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,529,447)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,542,456,044
<NUMBER-OF-SHARES-REDEEMED> (2,483,674,257)
<SHARES-REINVESTED> 9,721,684
<NET-CHANGE-IN-ASSETS> 649,521,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,840)
<GROSS-ADVISORY-FEES> 2,856,961
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,049,208
<AVERAGE-NET-ASSETS> 242,484,072
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>051
<NAME>Nations Treasury Reserve Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 1,634,898,260
<INVESTMENTS-AT-VALUE> 1,634,898,260
<RECEIVABLES> 1,918,310
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 73,472
<TOTAL-ASSETS> 1,636,890,042
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,167,003
<TOTAL-LIABILITIES> 159,167,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 246,062,174
<SHARES-COMMON-STOCK> 246,062,945
<SHARES-COMMON-PRIOR> 468,991,605
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (27,840)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 246,057,614
<DIVIDEND-INCOME> 2,100,213
<INTEREST-INCOME> 51,320,613
<OTHER-INCOME> 0
<EXPENSES-NET> 3,573,258
<NET-INVESTMENT-INCOME> 49,847,568
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 49,847,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,736,096)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,816,628,341
<NUMBER-OF-SHARES-REDEEMED> (2,044,081,851)
<SHARES-REINVESTED> 4,524,850
<NET-CHANGE-IN-ASSETS> 649,521,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,840)
<GROSS-ADVISORY-FEES> 2,856,961
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,049,208
<AVERAGE-NET-ASSETS> 254,343,866
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>052
<NAME>Nations Treasury Reserve Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 1,634,898,260
<INVESTMENTS-AT-VALUE> 1,634,898,260
<RECEIVABLES> 1,918,310
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 76,643
<TOTAL-ASSETS> 1,636,890,042
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,167,003
<TOTAL-LIABILITIES> 159,167,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 743,424,368
<SHARES-COMMON-STOCK> 743,424,376
<SHARES-COMMON-PRIOR> 81,577,976
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (27,840)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 743,410,161
<DIVIDEND-INCOME> 2,100,213
<INTEREST-INCOME> 51,320,613
<OTHER-INCOME> 0
<EXPENSES-NET> 3,573,258
<NET-INVESTMENT-INCOME> 49,847,568
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 49,847,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,289,592)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,905,975,704
<NUMBER-OF-SHARES-REDEEMED> (2,254,978,145)
<SHARES-REINVESTED> 10,848,841
<NET-CHANGE-IN-ASSETS> 649,521,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,840)
<GROSS-ADVISORY-FEES> 2,856,961
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,049,208
<AVERAGE-NET-ASSETS> 252,473,380
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>054
<NAME>Nations Treasury Market Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 1,634,898,260
<INVESTMENTS-AT-VALUE> 1,634,898,260
<RECEIVABLES> 1,918,310
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 76,643
<TOTAL-ASSETS> 1,636,890,042
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 159,167,003
<TOTAL-LIABILITIES> 159,167,003
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 265,500,010
<SHARES-COMMON-STOCK> 265,500,010
<SHARES-COMMON-PRIOR> 123,400,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (27,840)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 265,495,051
<DIVIDEND-INCOME> 2,100,213
<INTEREST-INCOME> 51,320,613
<OTHER-INCOME> 0
<EXPENSES-NET> 3,573,258
<NET-INVESTMENT-INCOME> 49,847,568
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 49,847,568
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,292,433)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 903,800,000
<NUMBER-OF-SHARES-REDEEMED> (761,700,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 649,521,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (27,840)
<GROSS-ADVISORY-FEES> 2,856,961
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,049,208
<AVERAGE-NET-ASSETS> 203,019,060
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>063
<NAME>Nations Government Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 575,668,671
<INVESTMENTS-AT-VALUE> 575,668,671
<RECEIVABLES> 1,746,785
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,258
<TOTAL-ASSETS> 577,437,714
<PAYABLE-FOR-SECURITIES> 7,995,392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,399,693
<TOTAL-LIABILITIES> 9,395,085
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,163,725
<SHARES-COMMON-STOCK> 70,164,071
<SHARES-COMMON-PRIOR> 24,845,499
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,209)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 70,163,919
<DIVIDEND-INCOME> 597,501
<INTEREST-INCOME> 25,988,737
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,801
<NET-INVESTMENT-INCOME> 24,685,437
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,685,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,426,626)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 392,890,359
<NUMBER-OF-SHARES-REDEEMED> (349,505,603)
<SHARES-REINVESTED> 1,933,816
<NET-CHANGE-IN-ASSETS> 192,840,017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,209)
<GROSS-ADVISORY-FEES> 1,417,467
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,537,035
<AVERAGE-NET-ASSETS> 46,805,015
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>061
<NAME>Nations Government Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 575,668,671
<INVESTMENTS-AT-VALUE> 575,668,671
<RECEIVABLES> 1,746,785
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,258
<TOTAL-ASSETS> 577,437,714
<PAYABLE-FOR-SECURITIES> 7,995,392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,399,693
<TOTAL-LIABILITIES> 9,395,085
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,607,335
<SHARES-COMMON-STOCK> 190,607,352
<SHARES-COMMON-PRIOR> 125,377,425
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,209)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 190,606,901
<DIVIDEND-INCOME> 597,501
<INTEREST-INCOME> 25,988,737
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,801
<NET-INVESTMENT-INCOME> 24,685,437
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,685,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,042,264)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,207,037,500
<NUMBER-OF-SHARES-REDEEMED> (1,148,448,015)
<SHARES-REINVESTED> 6,640,442
<NET-CHANGE-IN-ASSETS> 192,840,017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,209)
<GROSS-ADVISORY-FEES> 1,417,467
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,537,035
<AVERAGE-NET-ASSETS> 166,637,532
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>062
<NAME>Nations Government Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 575,668,671
<INVESTMENTS-AT-VALUE> 575,668,671
<RECEIVABLES> 1,746,785
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,258
<TOTAL-ASSETS> 577,437,714
<PAYABLE-FOR-SECURITIES> 7,995,392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,399,693
<TOTAL-LIABILITIES> 9,395,085
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,772,768
<SHARES-COMMON-STOCK> 32,773,194
<SHARES-COMMON-PRIOR> 6,481,676
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,209)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32,773,124
<DIVIDEND-INCOME> 597,501
<INTEREST-INCOME> 25,988,737
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,801
<NET-INVESTMENT-INCOME> 24,685,437
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,685,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,783,594)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 655,655,017
<NUMBER-OF-SHARES-REDEEMED> (631,081,883)
<SHARES-REINVESTED> 1,718,384
<NET-CHANGE-IN-ASSETS> 192,840,017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,209)
<GROSS-ADVISORY-FEES> 1,417,467
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,537,035
<AVERAGE-NET-ASSETS> 33,926,779
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>064
<NAME>Nations Government Reserves Market Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 575,668,671
<INVESTMENTS-AT-VALUE> 575,668,671
<RECEIVABLES> 1,746,785
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,258
<TOTAL-ASSETS> 577,437,714
<PAYABLE-FOR-SECURITIES> 7,995,392
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,399,693
<TOTAL-LIABILITIES> 9,395,085
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 274,500,010
<SHARES-COMMON-STOCK> 274,500,010
<SHARES-COMMON-PRIOR> 218,500,010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,209)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 274,498,685
<DIVIDEND-INCOME> 597,501
<INTEREST-INCOME> 25,988,737
<OTHER-INCOME> 0
<EXPENSES-NET> 1,900,801
<NET-INVESTMENT-INCOME> 24,685,437
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,685,437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,432,953)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 799,149,999
<NUMBER-OF-SHARES-REDEEMED> (743,149,999)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 192,840,017
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,209)
<GROSS-ADVISORY-FEES> 1,417,467
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,537,035
<AVERAGE-NET-ASSETS> 225,119,750
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>013
<NAME> Nations Municipal Reserves Adviser
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 250,631,771
<INVESTMENTS-AT-VALUE> 250,631,771
<RECEIVABLES> 1,994,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 91,785
<TOTAL-ASSETS> 252,717,673
<PAYABLE-FOR-SECURITIES> 2,862,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 595,256
<TOTAL-LIABILITIES> 3,457,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,935,782
<SHARES-COMMON-STOCK> 29,935,782
<SHARES-COMMON-PRIOR> 7,296,448
<ACCUMULATED-NII-CURRENT> 11,799
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,152)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 29,935,644
<DIVIDEND-INCOME> 158,305
<INTEREST-INCOME> 9,031,812
<OTHER-INCOME> 0
<EXPENSES-NET> 1,028,809
<NET-INVESTMENT-INCOME> 8,173,107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,173,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (948,244)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 275,458,637
<NUMBER-OF-SHARES-REDEEMED> (253,694,084)
<SHARES-REINVESTED> 874,781
<NET-CHANGE-IN-ASSETS> 49,298,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,152)
<GROSS-ADVISORY-FEES> 736,184
<INTEREST-EXPENSE> 48,371
<GROSS-EXPENSE> 2,145,795
<AVERAGE-NET-ASSETS> 29,216,388
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>011
<NAME>Nations Municipal Reserves Capital
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 250,631,771
<INVESTMENTS-AT-VALUE> 250,631,771
<RECEIVABLES> 1,994,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 91,785
<TOTAL-ASSETS> 252,717,673
<PAYABLE-FOR-SECURITIES> 2,862,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 595,256
<TOTAL-LIABILITIES> 3,457,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,251,778
<SHARES-COMMON-STOCK> 74,251,778
<SHARES-COMMON-PRIOR> 59,701,299
<ACCUMULATED-NII-CURRENT> 11,799
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,152)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 74,251,435
<DIVIDEND-INCOME> 158,305
<INTEREST-INCOME> 9,031,812
<OTHER-INCOME> 0
<EXPENSES-NET> 1,028,809
<NET-INVESTMENT-INCOME> 8,173,107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,173,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,352,169)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344,665,444
<NUMBER-OF-SHARES-REDEEMED> (330,310,094)
<SHARES-REINVESTED> 195,129
<NET-CHANGE-IN-ASSETS> 49,298,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,152)
<GROSS-ADVISORY-FEES> 736,184
<INTEREST-EXPENSE> 48,371
<GROSS-EXPENSE> 2,145,795
<AVERAGE-NET-ASSETS> 66,552,158
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER>012
<NAME>Nations Municipal Reserves Liquidity
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 250,631,771
<INVESTMENTS-AT-VALUE> 250,631,771
<RECEIVABLES> 1,994,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 91,785
<TOTAL-ASSETS> 252,717,673
<PAYABLE-FOR-SECURITIES> 2,862,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 595,256
<TOTAL-LIABILITIES> 3,457,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,073,798
<SHARES-COMMON-STOCK> 53,073,798
<SHARES-COMMON-PRIOR> 54,677,062
<ACCUMULATED-NII-CURRENT> 11,799
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,152)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 53,073,553
<DIVIDEND-INCOME> 158,305
<INTEREST-INCOME> 9,031,812
<OTHER-INCOME> 0
<EXPENSES-NET> 1,028,809
<NET-INVESTMENT-INCOME> 8,173,107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,173,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,797,755)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 702,167,166
<NUMBER-OF-SHARES-REDEEMED> (705,376,288)
<SHARES-REINVESTED> 1,605,858
<NET-CHANGE-IN-ASSETS> 49,298,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,152)
<GROSS-ADVISORY-FEES> 736,184
<INTEREST-EXPENSE> 48,371
<GROSS-EXPENSE> 2,145,795
<AVERAGE-NET-ASSETS> 53,539,113
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> Nations Municipal Reserves Mkt Shares
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 250,631,771
<INVESTMENTS-AT-VALUE> 250,631,771
<RECEIVABLES> 1,994,117
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 91,785
<TOTAL-ASSETS> 252,717,673
<PAYABLE-FOR-SECURITIES> 2,862,201
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 595,256
<TOTAL-LIABILITIES> 3,457,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,000,010
<SHARES-COMMON-STOCK> 92,000,010
<SHARES-COMMON-PRIOR> 78,300,010
<ACCUMULATED-NII-CURRENT> 11,799
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,152)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 91,999,584
<DIVIDEND-INCOME> 158,305
<INTEREST-INCOME> 9,031,812
<OTHER-INCOME> 0
<EXPENSES-NET> 1,028,809
<NET-INVESTMENT-INCOME> 8,173,107
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,173,107
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,063,140)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 326,000,000
<NUMBER-OF-SHARES-REDEEMED> (312,300,000)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,298,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,152)
<GROSS-ADVISORY-FEES> 736,184
<INTEREST-EXPENSE> 48,371
<GROSS-EXPENSE> 2,145,795
<AVERAGE-NET-ASSETS> 96,087,090
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> PRIME ADVANTAGE INSTITUTIONAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-15-1998
<INVESTMENTS-AT-COST> 82850600
<INVESTMENTS-AT-VALUE> 82850600
<RECEIVABLES> 296184
<ASSETS-OTHER> 3091
<OTHER-ITEMS-ASSETS> 36035217
<TOTAL-ASSETS> 119185092
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305264
<TOTAL-LIABILITIES> 305264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118889260
<SHARES-COMMON-STOCK> 118889260
<SHARES-COMMON-PRIOR> 177917523
<ACCUMULATED-NII-CURRENT> 3853
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 13285
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 118879828
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3690212
<OTHER-INCOME> 0
<EXPENSES-NET> 127225
<NET-INVESTMENT-INCOME> 3562987
<REALIZED-GAINS-CURRENT> 304
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3563291
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188672761
<NUMBER-OF-SHARES-REDEEMED> 247701024
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (59027959)
<ACCUMULATED-NII-PRIOR> 7902030
<ACCUMULATED-GAINS-PRIOR> 36
<OVERDISTRIB-NII-PRIOR> 7902030
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 170972
<AVERAGE-NET-ASSETS> 141422999
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
THE CAPITOL FUNDS
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST dated the 22nd day of January, 1990, by
the Trustees hereunder, and by the holders of Shares of beneficial interest to
be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company: and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
Shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "The Capitol Funds," and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Agreement and Declaration of Trust, as amended from
time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV and then in office;
(c) The term "Shares" means the equal proportionate transferable
units of interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or class of Shares
is authorized by the Trustees, the equal proportionate transferable units
into which each series or class of Shares shall be divided from time to
time;
<PAGE>
(d) "Shareholder" means a record owner of Shares;
(e) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)
(42) of the Investment Company Act of 1940 (the "1940 Act") and the rules
and Regulations thereunder, all as amended from time to time, whichever
may be applicable) shall have the meanings given them in the 1940 Act;
(f) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; and
(g) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.
(h) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time.
ARTICLE II
Purpose
The purpose of the Trust is to provide investors with one or more
investment portfolios consisting primarily of securities, including debt
instruments or obligations.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more series as
the Trustees may, without shareholder approval, authorize. Each series shall be
preferred over all other series in respect of the assets allocated to that
series. The beneficial interest in each series shall at all times be divided
into Shares, without par value, each of which shall represent an equal
proportionate interest in the series with each other Share of the same series,
none having priority or preference over another. Each series shall be
represented by one or more classes of Shares, with each class possessing such
rights (including, notwithstanding any contrary provision herein, voting rights)
as the Trustees may, without shareholder approval, authorize. The number of
Shares authorized shall be unlimited, and the Shares so authorized may be
represented in part by fractional Shares. The Trustees may from time to time
divide or combine the Shares of any series into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or its transfer or similar agent. No certificates certifying the ownership
of Shares shall be issued except as the Trustees may otherwise determine from
time to time The Trustees may make such rules as they consider appropriate for
the issuance of Share certificates, the transfer of Shares and
2
<PAGE>
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and as to the number of Shares of
each series held from time to time by each Shareholder.
Investments in the Trust: Assets of the Series
Section 3. The Trustees may accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, they may from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares
of each series, together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of account of the Trust and are herein referred to as "assets of"
such series. In addition, any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular series shall be allocated by the Trustees between and among one
or more of the series in such manner as they, in their sole discretion, deem
fair and equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all series for all purposes, and shall be referred to as
assets belonging to that series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to receive,
purchase or subscribe for any additional Shares or other securities issued by
the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having become
a Shareholder shall be held to have expressly assented and agreed to the terms
of this Declaration of Trust and to have become a party thereto. The death of a
Shareholder during the continuance of the Trust shall not operate to terminate
the same nor entitle the representative of any deceased Shareholder to an
accounting or to take any action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decendent under this Trust. Ownership
of Shares shall not entitle the Shareholder to any title in or to the whole or
any part of the Trust property or right to call for a partition or division of
the same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
3
<PAGE>
Trustees and Officers as Shareholders
Section 6. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of Shares of the Trust to the same extent as if he were not a
Trustee, officer or agent; and the Trustees may issue and sell or cause to be
issued and sold Shares to and buy such Shares from any such person of any firm
or company in which he is interested, subject only to the general limitations
herein contained as to the sale and purchase of such Shares; and all subject to
any restrictions which may be contained in the By-Laws.
ARTICLE IV
The Trustees
Election
Section 1. The number of Trustees shall be fixed by the Trustees, except
that, commencing with the first shareholders meeting at which Trustees are
elected, there shall be not less than three nor more than fifteen Trustees, each
of whom shall hold office during the lifetime of this Trust or until the
election and qualification of his or her successor, or until he or she sooner
dies, resigns or is removed. The number of Trustees so fixed may be increased
either by the Shareholders or by the Trustees by a vote of a majority of the
Trustees then in office. The number of Trustees so fixed may be decreased either
by the Shareholders or by the Trustees by vote of a majority of the Trustees
then in office, but only to eliminate vacancies existing by reason of the death,
resignation or removal of one or more Trustees.
The initial Trustees, each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or her successor is
elected and qualified, or until he or she sooner dies, resigns or is removed,
shall be Robert A. Nesher and such other persons as the Trustee or Trustees then
in office shall, prior to any sale of Shares pursuant to public offering,
appoint. By vote of the Shareholders holding a majority of the shares entitled
to vote, the Shareholders may remove a Trustee with or without cause. By vote of
a majority of the Trustees then in office, the Trustees may remove a Trustee for
cause. Any Trustee may, but need not, be a Shareholder.
In case of the declination, death, resignation, retirement, removal,
incapacity, or inability of any of the Trustees, or in case a vacancy shall
exist by reason of an increase in number, or for any other reason, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit consistent with the limitations under the 1940
Act. Such appointment shall be evidenced by a written instrument signed by a
majority of the Trustees in office or by recording in the records of the Trust,
whereupon the appointment shall take effect. An appointment of a Trustee may be
made by the Trustees then in office in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees effective at
a later date, provided that said appointment shall become effective only at or
after the effective date of said retirement, resignation or increase in number
of Trustees As soon as any Trustee so appointed shall have accepted this trust,
the trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. The power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act. In the event that at any time after
the commencement of public
4
<PAGE>
sales of Trust Shares less than a majority of the Trustees then holding
office were elected to such office by the Shareholders, the Trustees or the
Trust's President promptly shall call a meeting of Shareholders for the purpose
of electing Trustees. Each Trustee elected by the Shareholders or by the
Trustees shall serve until the election or qualification of his or her
successor, or until he or she sooner dies, resigns or is removed.
Effect of Death, Resignation, Etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt By-Laws not inconsistent with
this Declaration of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such By-Laws do not reserve
that right to the Shareholders; they may fill vacancies in their number,
including vacancies resulting from increases in their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the powers and authority of the Trustees as the Trustees may determine; they
may appoint an advisory board, the members of which shall not be Trustees and
need not be Shareholders; they may employ one or more investment advisers or
managers as provided in Section 7 of this Article IV; they may employ one or
more custodians of the assets of the trust and may authorize such custodians to
employ subcustodians and to deposit all or any part of such assets in a system
or systems for the central handling of securities, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution of Shares by
the Trust, through one or more principal underwriters or otherwise, set record
dates for the determination of Shareholders with respect to various matters, and
in general delegate such authority as they consider desirable to any officer of
the Trust, to any committee of the Trustees and to any agent. or employee of the
Trust or to any such custodian or underwriter; and they may elect and remove
such officers and appoint and terminate such agents as they consider
appropriate.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
5
<PAGE>
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the name of the
Trustees or of the Trust or in the name of a custodian, subcustodian or other
depositary or a nominee or nominees or otherwise;
(f) To establish separate and distinct series of shares with separately
defined investment objectives, policies and purposes, and to allocate assets,
liabilities and expenses of the Trust to a particular series of Shares or to
apportion the same among two or more series, provided that any liability or
expense incurred by a particular series of Shares shall be payable solely out of
the assets of that series and to establish separate classes of shares of each
series;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or property
of which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(k) To borrow funds from a bank for temporary or emergency purposes and
not for investment purposes;
(1) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or otherwise assume
liability for payment thereof; and to mortgage and pledge the Trust property or
any part thereof to secure any or all of such obligations;
(m) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business,
including, without limitation, insurance policies insuring the assets of the
Trust and payment of distributions and principal on its portfolio investments,
and insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers or managers, principal underwriters, or independent
contractors of the Trust individually against all claims and liabilities of
every nature arising by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been taken or omitted by
any such person as Shareholder, Trustee, officer,
6
<PAGE>
employee, agent, investment adviser or manager, principal underwriter, or
independent contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(n) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing, share
bonus, share purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing of life insurance
and annuity contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and agents of the
Trust; and
(o) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein or from time to time in the By-Laws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (if a quorum be present), within or without Massachusetts, including
any meeting held by means of a conference telephone or other communications
equipment by which all persons participating in the meeting can communicate with
each other simultaneously and participation by such means shall constitute
presence in person at a meeting, or by written consent of a majority of the
Trustees then in office.
Payment of Expenses by the Trust
Section 4. The Trustees are authorized to pay or to cause to be paid out of
the principal or income of the Trust, or partly out of principal and partly out
of income, as they deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in connection with the
management thereof, including, but not limited to, the Trustees' compensation
and such expenses and charges for the services of the Trust's officers,
employees, investment adviser or manager, principal underwriter, auditor,
counsel, custodian, transfer agent, Shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares as determined by the Trustees, shall be
payable solely out of the assets of that Series. Any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees between or among any one or more of the series in such
manner as the Trustees in their sole discretion deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
series for all purposes. Any creditor of any series may look only to the assets
of that series to satisfy such creditor's debt.
Section 5. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears, for
any and all expenses of the Trust, an amount fixed from time to time by the
Trustees, by setting off such charges from such Shareholder from declared but
unpaid dividends owed such Shareholder and/or by reducing the
7
<PAGE>
number of Shares in the account of such Shareholder by that number of full
and/or fractional Shares which represents the outstanding amount of such charges
due from such Shareholder. Ownership of Assets of the Trust
Section 6. Title to all of the assets of each series of Shares and the
Trust shall at all times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 7. The Trustees may, at any time and from time to time, contract
with respect to the Trust or any series thereof for exclusive or nonexclusive
advisory; and/or management services with SEI Financial Management Corporation,
a Delaware corporation, and/or any other corporation, trust, association or
other organization, every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. Any
contract for advisory services shall be subject to such Shareholder approval as
is required by the 1940 Act. The Trustees may also, at any time and from time to
time, contract with SEI Financial Services Company, a Pennsylvania corporation,
and/or any other corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or principal underwriter for
the Shares, every such contract to comply with such requirements and
restrictions as may be set forth in the By-Laws, and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter, or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management or principal underwriter's or distributor's contract, or
transfer, Shareholder servicing or other agency contract may have been or
may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder or has an interest in the Trust, or
that
(ii) any corporation, trust, association or other organization with
which an advisory or management or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, Shareholder servicing or other agency contract with one or
more other corporations, trusts, associations, or other organizations, or
has other businesses or interests shall not affect the validity of any
such contract or disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any liability or
accountability to the Trust or its Shareholders.
8
<PAGE>
Action by the Trustees
Section 8. The Trustees shall act by majority vote at a meeting duly called
or by unanimous written consent without a meeting or by telephone consent
provided a quorum of Trustees participates in any such telephonic meeting,
unless the 1940 Act requires that a particular action be taken only at a meeting
in person of the Trustees.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. The Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, (ii) with
respect to any investment adviser as provided in Article IV, Section 7, (iii)
with respect to any termination of the Trust or any series to the extent and as
provided in Article IX, Section 4, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 7, (v)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (vi) with respect to such additional matters relating
to the Trust as may be required by law, by this Declaration of Trust, by the
By-Laws or by any registration of the Trust with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provisions of this
Declaration of Trust, or any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted by individual series,
except (1) when required by the 1940 Act, Shares shall be voted in the aggregate
and not by individual series, and (2) when the Trustees have determined that the
matter affects only the interests of one or more series, then only Shareholders
of such series shall be entitled to vote thereon. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the exercise
of the proxy the Trust receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the By-Laws to be taken by Shareholders.
Voting Power and Meetings
Section 2. Meetings of Shareholders of the Trust or of any series or class
may be called by the Trustees, or such other person or persons as may be
specified in the By-Laws, and
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held from time to time for the purpose of taking action upon any matter
requiring the vote or the authority of the Shareholders of the Trust or any
series or class as herein provided or upon any other matter deemed by the
Trustees to be necessary or desirable. Meetings of Shareholders of the Trust or
of any series or class shall be called by the Trustees or such other person or
persons as may be specified in the By-Laws upon written application requesting
that a meeting be called for a purpose requiring action by the Shareholders as
provided herein or in the By-Laws by Shareholders holding at least 10% of the
outstanding Shares of the Trust if Shareholders of all series are required
hereunder to vote in the aggregate and not by individual series at such meeting,
or Shareholders holding at least 10% of the outstanding shares of a series or
class if Shareholders of such series or class are entitled hereunder to vote by
individual series or class at such meeting. The Shareholders shall be entitled
to at least seven days' written notice of any meeting of the Shareholders.
Quorum and Required Vote
Section 3. A majority of the Shares entitled to vote shall be a quorum for
the transaction of business at a Shareholders' meeting, except that where any
provision of law or of this Declaration of Trust permits or requires that
holders of any series or class shall vote as a series or class, then a majority
of the aggregate number of Shares of that series or class entitled to vote shall
be necessary to constitute a quorum for the transaction of business by that
series or class. Any lesser number, however, shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice.
Except when a larger vote is required by any provisions of this
Declaration of Trust or the By-Laws, a majority of the Shares voted on any
matter shall decide such matter and a plurality shall elect a Trustee, provided
that where any provision of law or of this Declaration of Trust permits or
requires that the holders of any series or class shall vote as a series or
class, then a majority of the Shares of that series or class voted on the matter
shall decide that matter insofar as that series or class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
vote as shall be required by any provision of this Declaration of Trust or the
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
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ARTICLE VI
Distributions, Redemptions, Repurchases
and Determination of Net Asset Value
Distributions
Section 1. The Trustees may, but need not, distribute each year to the
Shareholders of each series such income and gains, accrued or realized, as the
Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, if any be made, may be made
in one or more payments, which shall be in Shares, in cash or otherwise and on a
date or dates determined by the Trustees. At any time and from time to time in
their discretion, the Trustees may distribute to the Shareholders of any one or
more series as of a record date or dates determined by the Trustees, in shares,
in cash or otherwise, all or part of any gains realized on the sale or
disposition of property of the series or otherwise, or all or part of any other
principal of the Trust attributable to the series. Each distribution pursuant to
this Section 1 shall be made ratably according to the number of Shares of the
series or class held by the several Shareholders on the applicable record date
thereof, provided that no distributions need be made on Shares purchased
pursuant to orders received, or for which payment is made, after such time or
times as the Trustees may determine. Any such distribution paid in Shares will
be paid at the net asset value thereof as determined in accordance with this
Declaration of Trust.
Redemptions and Repurchases
Section 2. Any holder of Shares of the Trust may by presentation of a
written request, together with his certificates, if any, for such Shares, in
proper form for transfer, at the office of the Trust, the adviser, the
underwriter or the distributors, or at a principal office of a transfer or
Shareholder services agent appointed by the Trust (as the Trustees may
determine), redeem his Shares for the net asset value thereof determined and
computed in accordance with the provisions of this Section 2 and the provisions
of Section 5 of Article VI of this Declaration of Trust, less any redemption
charge which the Trustees may establish. Upon receipt of such written request
for redemption of Shares by the Trust, the adviser, the underwriter or the
distributor, or the Trust's transfer or Shareholder services agent, such Shares
shall be redeemed at the net asset value per share of the particular series next
determined after such Shares are tendered in proper form for transfer to the
Trust or determined as of such other time fixed by the Trustees, as may be
permitted or required by the 1940 Act, provided that no such tender shall be
required in the case of Shares for which a certificate or certificates have not
been issued, and in such case such Shares shall be redeemed at the net asset
value per share of the particular series next determined after such demand has
been received or determined at such other time fixed by the Trustees, as may be
permitted or required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each series as set
forth above in this Section 2 shall be subject to the condition that, during any
time of emergency, as hereinafter
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defined, such obligation may be suspended by the Trust by or under
authority of the Trustees for such period or periods during such time of
emergency as shall be determined by or under authority of the Trustees. If there
is such a suspension, any Shareholder may withdraw any demand for redemption and
any tender of Shares which has been received by the Trust during any such period
and any tender of Shares the applicable net asset value of which would but for
such suspension be calculated as of a time during such period. Upon such
withdrawal, the trust shall return to the Shareholder the certificates therefor,
if any. For the purposes of any such suspension "time of emergency" shall mean,
either with respect to all Shares or any series of Shares, any period during
which:
(a) the New York Stock Exchange is closed other than for customary
weekend and holiday closings; or
(b) the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and regulations or
orders of the Commission, either that trading on the New York Stock
Exchange is restricted, or that an emergency exists as a result of which
(i) disposal by the Trust of securities owned by it is not reasonably
practicable or (ii) it is not reasonably practicable for the Trust fairly
to determine the current value of its net assets; or
(c) the suspension or postponement of such obligations is permitted
by order of the Commission.
The Trust may also purchase, repurchase or redeem Shares in accordance
with such other methods, upon such other terms and subject to such other
conditions as the Trustees may from time to time authorize at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
Payment in Kind
Section 3. Subject to any generally applicable limitation imposed by the
Trustees, any payment on redemption, purchase or repurchase by the Trust of
Shares may, if authorized by the Trustees, be made wholly or partly in kind,
instead of in cash. Such payment in kind shall be made by distributing
securities or other property, constituting, in the opinion of the Trustees, a
fair representation of the various types of securities and other property then
held by the series of Shares being redeemed, purchased or repurchased (but not
necessarily involving a portion of each of the series' holdings) and taken at
their value used in determining the net asset value of the Shares in respect of
which payment is made.
Additional Provisions Relating to Redemptions and Repurchases
Section 4. The completion of redemption, purchase or repurchase of Shares
shall constitute a full discharge of the Trust and the Trustees with respect to
such Shares and the Trustees may require that any certificate or certificates
issued by the Trust to evidence the ownership of such Shares shall be
surrendered to the Trustees for cancellation or notation.
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Determination of Net Asset Value
Section 5. The term "net asset value" of the Shares of each series shall
mean: (i) the value of all the assets of such series; (ii) less total
liabilities of such series; (iii) divided by the number of Shares of such series
outstanding, in each case at the time of each determination. The "number of
Shares of such series outstanding" for the purpose of such computation shall be
exclusive of any Shares of such series to be redeemed, purchased or repurchased
by the Trust and not then redeemed, purchased or repurchased as to which the
price has been determined, but shall include Shares of such series presented for
redemption, purchase or repurchase by the Trust and not then redeemed, purchased
or repurchased as to which the price has not been determined and Shares of such
series the sale of which has been confirmed. Any fractions involved in the
computation of net asset value per share shall be adjusted to the nearer cent
unless the Trustees shall determine to adjust such fractions to a fraction of a
cent.
The Trustees or any officer, officers or agent of the Trust designated for
the purpose by the Trustees shall determine the net asset value of the Shares of
each series, and the Trustees shall fix the times as of which the net asset
value of the Shares of each series shall be determined and shall fix the periods
during which any such net asset value shall be effective as to sales,
redemptions and repurchases of, and other transactions in, the Shares of such
series, except as such times and periods for any such transaction may be fixed
by other provisions of this Declaration of Trust or the By-Laws. In valuing the
portfolio investments of any series for determination of net asset value per
Share of such series, securities for which market quotations are readily
available shall be valued at prices which, in the opinion of the Trustees any
officer, officers or agent of the Trust designated for the purpose by the
Trustees, most nearly represent the market value of such securities, which may,
but need not, be the most recent bid price obtained from one or more of the
market makers for such securities; other securities and assets shall be valued
at fair value as determined by or pursuant to the direction of the Trustees.
Notwithstanding the foregoing, short-term debt obligations, commercial paper,
and repurchase agreements may be, but need not be, valued on the basis of quoted
yields for securities of comparable maturity, quality and type, or on the basis
of amortized cost. In the determination of net asset value of any series,
dividends receivable and accounts receivable for investments sold and for Shares
sold shall be stated at the amounts to be received therefor; and income
receivable accrued daily on bonds and notes owned shall be stated at the amount
to be received. Any other assets shall be stated at fair value as determined by
the Trustees or such officer, officers or agent pursuant to the Trustees'
authority, except that no value shall be assigned to good will, furniture,
lists, reports, statistics or other noncurrent assets other than real estate.
Liabilities of any series for accounts payable, for investments purchased and
for Shares tendered for redemption, purchase or repurchase by the Trust and not
then redeemed, purchased or repurchased as to which the price has been
determined shall be stated at the amounts payable therefor. In determining net
asset value of any series, the person or persons making such determination on
behalf of the Trust may include in liabilities such reserves, estimated accrued
expenses and contingencies as such person or persons may in its, his or their
best judgment deem fair and reasonable under the circumstances. Any income
dividends and gains distributions payable by the Trust shall be deducted as of
such time or times on the record date therefor as the Trustees shall determine.
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The manner of determining the net assets of any series or of determining
the net asset value of the Shares of any series may from time to time be altered
as necessary or desirable in the judgment of the Trustee to conform to any other
method prescribed or permitted by any applicable law or regulation or generally
accepted accounting practice.
Determinations in accordance with Section 5 made in good faith shall be
binding on all parties concerned.
Redemptions at the Option of the Trust
Section 6. The Trust shall have the right at its option and at any time to
redeem Shares at the net asset value thereof (i) if such Shares are not held in
an account of a customer of SEI Corporation or any of its affiliated companies
or in such other account as the Trustee may determine from time to time; (ii) if
at such time such Shareholder owns fewer Shares than, or Shares having an
aggregate net asset value of less than, an amount determined from time to time
by the Trustees; (iii) to the extent that such Shareholder owns Shares of a
particular series of Shares equal to or in excess of a percentage of the
outstanding Shares of that series determined from time to time by the Trustees;
or (iv) to the extent that such Shareholder owns Shares of the Trust
representing a percentage equal to or in excess of such percentage of the
aggregate number of outstanding Shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Trustees.
Dividends, Distributions, Redemptions and Repurchases
Section 7. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the Shares of any series shall be
effected by the Trust other than from the assets of such series.
Maintenance of Constant Net Asset Value - Money Market Series
Section 8. The Trust will use its best efforts to maintain the net asset
value per Share of each money market series at $1.00. In the event that the
Trust, or any series, incurs a loss or liability, which the Trustees, in their
sole discretion, determine to be significant with respect to the maintenance by
the Trust of a constant net asset value of $l.00 per Share for each series, the
Trustees shall have the power (i) to reduce the number of Shares of the Trust,
or the series, as the case may be, by that number of full and fractional Shares
which represent the amount of such loss or liability, by reducing the number of
Shares in the account of each Shareholder of the Trust or the series, as the
case may be, on a pro rata basis; (ii) to offset the pro rata share of such loss
or liability from the accrued dividend account of each Shareholder of the Trust
or the series, as the case may be, and/or (iii) to cause to be recorded on the
books of the Trust or the series, as the case may be, an asset account in the
amount of any such loss or liability, which account may be reduced by the amount
of dividends declared thereafter upon the Shares of the Trust or the series, as
the case may be, outstanding on the day any such loss or liability is incurred,
until such asset account is reduced to zero.
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ARTICLE VII
Compensation and Limitation
of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event for
any neglect or wrongdoing of any officer, agent, employee, investment adviser or
manager, principal underwriter or custodian, nor shall any Trustee be
responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Subject to the exceptions and limitations contained in this Article, every
person who is, or has been, a Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Trustee or officer:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(b) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Trust;
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(c) in the event of a settlement or other disposition not involving
a final adjudication (as provided in paragraph (a) or (b)) and resulting
in a payment by a Trustee or officer, unless there has been either a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office by the court or other body
approving the settlement or other disposition or a reasonable
determination, based on a review of readily available facts (as opposed
to a full trial-type inquiry) that he did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification hereinafter provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Trustees and officers may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in the next to the last
paragraph of this Article shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Article, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Article, a "Disinterested Trustee" is one (i) who is not
an "interested person of the Trust (as defined by the 1940 Act) (including
anyone who has been exempted from being an "interested person:" by any rule,
regulation or order of the Securities and Exchange Commission), and (ii) against
whom none of such actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or has been pending.
As used in this Article, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorney's fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
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In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expenses arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, Etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually.
Trustees' Good Faith Action, Expert Advice; No Bond or Surety
Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the
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application of any payments made or property transferred to the Trust or upon
its order.
Duration and Termination of
Trust
Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least a majority of the Shares entitled to vote or by
the Trustees by written notice to the Shareholders. Any series of Shares may be
terminated at any time by vote of Shareholders holding at least a majority of
the Shares of such series entitled to vote or by the Trustees by written notice
to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated, of the Trust or of the particular series
as may be determined by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or Shares or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the series involved,
ratably according to the number of Shares of such series held by the several
Shareholders of such series on the date of termination.
Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of the Commonwealth of Massachusetts and
with the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may rely
on certificate by an officer of the Trust as to whether or not any such
amendments have been made and as to any matters in connection with the Trust
hereunder; and, with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in such amendment, references to
this instrument, and the expression "herein," "hereof," and "hereunder," shall
be deemed to refer to this instrument as amended from time to time. Headings are
placed herein for convenience of reference only and shall not be taken as part
hereof or control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Applicable Law
Section 6. The Trust shall be of the type commonly called a Massachusetts
business trust, and without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust. This
Declaration of Trust is to be governed by and construed and administered
according to the laws of said Commonwealth.
Amendments
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which
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shall affect the holders of one or more series or classes of Shares but not
the holders of all outstanding series or classes shall be authorized by vote of
the Shareholders holding a majority of the Shares entitled to vote of each
series or classes affected and no vote of Shareholders of a series or classes
not affected shall be required. Amendments having the purpose of changing the
name of the Trust or of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision contained
herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned being the sole initial Trustee of the
Trust has executed this document this 18th day of January, 1990.
/s/Robert A. Nesher
Robert A. Nesher
c/o SEI Financial Services Company
680 East Swedesford Road
Wayne, PA 19087
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COMMONWEALTH OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
I, the undersigned authority, hereby certify that the foregoing is a
true and correct copy of the instrument presented to me by Robert A. Nesher
as the original of such instrument.
WITNESS my hand and official seal, this 18th day of January, 1990.
/s/James E. Howard Esq.
Notary Public
My commission expires: May 6, 1991
Resident Agent:
James E. Howard, Esquire
Kirkpatrick & Lockhart
Exchange Place, 53 State Street
Boston, MA 02109
(617) 277-6000
NATIONS INSTITUTIONAL RESERVES
(A Massachusetts Business Trust)
CERTIFICATE: CLASSIFICATION OF SHARES
The undersigned, Secretary of Nations Institutional Reserves
("Reserves"), hereby certifies that the Board of Trustees of Reserves duly
adopted the following votes at a meeting held on February 4, 1998:
WHEREAS, certain information has been provided to the Board of
Trustees concerning the approach to marketing and distributing the Funds of
Reserves and various methods generally available to investment companies to
market and distribute their shares to investors;
WHEREAS, the Trustees of Reserves approved a multi-class plan
pursuant to Rule 18f-3 under the 1940 Act on April 12, 1995, as amended (the
"Multi-Class Plan"), which describes the terms of Reserves multiple class share
distribution system; and
WHEREAS, it has been recommended that Reserves establish one new
investment portfolio, Nations Money Market Reserves, which is to have the
following characteristics:
(i) Adviser Class Shares of Nations Money Market Reserves: to be
offered to customers of certain financial institutions and
broker-dealers that have entered into a Shareholder
Servicing Agreement with Servicing Agents and a Shareholder
Servicing Plan with Reserves pursuant to a Shareholder
Servicing and Rule 12b-1 Plan authorizing payment of a
combined distribution and shareholder servicing fee not to
exceed 0.25% (on an annual basis) of the average daily net
assets attributable to Adviser Shares of Nations Money
Market Reserves; and to be subject to certain retail
transfer agency fees;
(ii) Liquidity Class Shares of Nations Money Market Reserves: to
be offered to customers of certain financial institutions
and broker-dealers that have entered into a Shareholder
Servicing Agreement with Servicing Agents and a Shareholder
Servicing Plan with Reserves, pursuant to a Shareholder
Servicing and Rule 12b-1 Plan, authorizing the payment of a
distribution fee not to exceed 0.30% (on an annual basis) of
the average daily net assets attributable to Liquidity Class
Shares of Nations Money Market Reserves and, (B) a
Shareholder Servicing Plan with Reserves authorizing payment
of a shareholder servicing fee not to exceed 0.25% (on an
annual basis) of the average daily net assets attributable
to Liquidity Class Shares of Nations Money Market Reserves;
and to be subject to certain retail transfer agency fees;
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(iii) Market Class Shares of Nations Money Market Reserves: to be
offered to customers of certain financial institutions and
broker-dealers that have entered into a Shareholder
Servicing Agreement with Servicing Agents and a Shareholder
Servicing Plan with Reserves, pursuant to a Rule 12b-1 Plan,
authorizing the payment of a distribution fee not to exceed
0.20% (on an annual basis) of the average daily net assets
attributable to Market Class Shares of Nations Money Market
Reserves, and (B) a Shareholder Servicing Plan with Reserves
authorizing payment of a shareholder servicing fee not to
exceed 0.25% (on an annual basis) of the average daily net
assets attributable to Market Class Shares of Nations Money
Market Reserves; and to be subject to certain retail
transfer agency fees;
(iv) Capital Class Shares of Nations Money Market Reserves: to be
offered to customers of certain banks and other financial
institutions; and
NOW THEREFORE BE IT:
VOTED, that pursuant to Article III, Section 1 and Article IV,
Section 3 of Reserves' Agreement and Declaration of Trust, an unlimited number
of authorized, unissued shares be, and they hereby are, allocated to Nations
Money Market Reserves and divided into and classified as a separate class or
classes of Nations Money Market Reserves as follows:
(i) Nations Money Market Reserves - Adviser Shares;
(ii) Nations Money Market Reserves - Capital Shares;
(iii) Nations Money Market Reserves - Liquidity Shares;
(iv) Nations Money Market Reserves - Market Shares;
FURTHER VOTED, that the Board of Trustees of Reserves, including a
majority of the Trustees who are not interested persons of Reserves, hereby find
that an amendment to the Multi-Class Plan for Reserves, as presented at this
meeting, including the method contained therein for allocating expenses among
the classes in a single Fund, is in the best interests of each class of shares
of Reserves individually and Reserves as a whole;
FURTHER VOTED, that the amendment to the Multi-Class Plan for
Reserves, as presented to this meeting, be, and it hereby is, ratified and
approved by the Board of Trustees, including a majority of the Trustees who are
not interested persons of Reserves; and
FURTHER VOTED, that consideration received by Reserves for the
issue or sale of any class of Nations Money Market Reserves' shares
(individually, a "Class" and collectively the "Classes") shall be invested and
reinvested with the consideration received by Reserves for the issue and sale of
all of such Nations Money Market Reserves' other classes, together with all
income, earnings, profits and proceeds thereof, including the proceeds derived
from the sale, exchange or liquidation thereof, any funds or payments derived
from any reinvestment of such
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proceeds in whatever form the same may be, and any general assets of Reserves
allocated to such Nations Money Market Reserves by the Board of Trustees in
accordance with Reserves' Agreement and Declaration of Trust, and each share of
any class of such Nations Money Market Reserves (individually, a "Share" and
collectively, the "Shares") shall share equally with each Share of all the
classes of such Nations Money Market Reserves in such consideration and other
assets, income, earnings, profits and proceeds thereof. ; and
FURTHER VOTED, that the Officers of Reserves be, and each hereby
is, authorized and directed to take all such actions as and when the officers
taking such action, in consultation with Reserves' counsel, deem necessary or
appropriate to effect establishment of the New Fund, including, but not limited
to, executing, sealing, delivering and filing a Certificate and/or Amendment to
the Reserves' Agreement and Declaration of Trust, and any and all other
documents, instruments, papers and writings as he or she may deem necessary or
appropriate to perform and carry out the preceding votes, such determination to
be conclusively evidenced by such acts.
The foregoing votes remain in full force and effect as of the date
hereof.
Dated: February 4, 1998
/s/ Richard H. Blank
--------------------------
Richard H. Blank, Jr.
Secretary
Subscribed and sworn to before
me this 4TH day of FEBRUARY, 1998
- -----------------------------------
Name: /s/ Lynn Broadaway
-----------------------------
Notary Public
Commission Expires: 9-14-2006
---------------
3
BY-LAWS
OF
THE CAPITOL MUTUAL FUNDS
SECTION 1. AGREEMENT AND DECLARATION OF TRUST AND PRINCIPAL OFFICE
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of The Capitol Mutual Funds, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located at such place as a majority of the Board of Trustees may designate from
time to time.
SECTION 2. SHAREHOLDERS
2.1 Special Meetings. A special meeting of the shareholders may be called at
any time by the Trustees, by the president or, if the Trustees and the president
shall fail to call any meeting of shareholders for a period of 30 days after
written application of one or more shareholders who hold at least 10% of all
shares issued and outstanding and entitled to vote at the meeting, then such
shareholders may call such meeting. If the meeting is a meeting of shareholders
of one or more series or classes of shares, but not a meeting of all
shareholders of the Trust. then only the shareholders of such one or more series
or classes shall be entitled to notice of and to vote at the meeting. Each call
of a meeting shall state the place, date, hour and purposes of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at the
principal office of the Trust, or, to the extent permitted by the Declaration of
Trust, at such other place within the United States as shall be designated by
the Trustees or the president of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meeting to each shareholder entitled to vote
thereat by leaving such notice with him or at his residence or usual place of
business or by mailing it, postage prepaid, and addressed to such shareholder at
his address as it appears in the records of the Trust. Such notice shall be
given by the secretary or an assistant secretary or by an officer designated by
the Trustees. No notice of any meeting of shareholders need be given to a
shareholder if a written waiver of notice, executed before or after the meeting
by such shareholder or his attorney thereunto duly authorized, is filed with the
records of the meeting.
2.4 Ballots. No ballot shall be required for any election unless requested by
a shareholder present or represented at the meeting and entitled to vote in the
election.
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2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting.
SECTION 3. TRUSTEES
3.1 Committees and Advisory Board. The Trustees may appoint from their number
an executive committee and other committees. Except as the Trustees may
otherwise determine, any such committee may make rules for conduct of its
business. The Trustees may appoint an advisory board to consist of not less than
two nor more than five members. The members of the advisory board shall be
compensated in such manner as the Trustees may determine and shall confer with
and advise the Trustees regarding the investments and other affairs of the
Trust. Each member of the advisory board shall hold office until the first
meeting of the Trustees following the next annual meeting of the shareholders
and until his successor is elected and qualified, or until he sooner dies,
resigns, is removed, or becomes disqualified, or until the advisory board is
sooner abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees. A regular meeting of the
Trustees may be held without call or notice immediately after and at the same
place as the annual meeting of the shareholders.
3.3 Special Meetings. Special meetings of the Trustees may be held at any
time and at any place designated in the call of the meeting, when called by the
Chairman of the Board, the president or the treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the secretary
or an assistant secretary or by the officer or one of the Trustees calling the
meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send notice by mail
at least forty-eight hours or by telegram at least twenty-four hours before the
meeting addressed to the Trustee at his or her usual or last known business or
residence address or to give notice to him or her in person or by telephone at
least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him or her
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her. Neither notice of a meeting nor a
waiver of a notice need specify the purposes of the meeting.
3.5 Quorum. At any meeting of the Trustees sixty percent (60%) of the
Trustees then in office shall constitute a quorum; provided, however, a quorum
shall not be less than three. Any meeting may be adjourned from time to time by
a majority of the votes cast upon the question,
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whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
3.6 Qualifications of Trustees. No person shall be qualified to stand for
election or appointment as a Trustee if such person has already reached the age
of 70. Each Trustee shall retire from service on the Board of Trustees no later
than the end of the calendar year in which such Trustee reaches age 70, provided
that any Trustee who is a Trustee as of January 25, 1995 and who had reached the
age of 70 prior to such date may continue to serve as a Trustee of the Trust
until the end of the calendar year in which such Trustee reaches age 75 and may
continue to serve for successive annual periods thereafter upon vote of a
majority of the other Trustees.
SECTION 4. OFFICERS AND AGENTS
4.1 Enumeration: qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as the
Trustees from time to time may in their discretion elect or appoint. The Trust
may also have such agents, if any, as the Trustees from time to time may in
their discretion appoint. Any officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person.
4.2 Powers. Subject to the other provisions of these By-Laws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to his or
her office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
4.3 Election. The president, the treasurer and the secretary shall be elected
annually by the Trustees at their first meeting following the annual meeting of
the shareholders. Other officers, if any, may be elected or appointed by the
Trustees at said meeting or at any other time.
4.4 Tenure. The president, the treasurer and the secretary shall hold office
until the first meeting of Trustees following the next annual meeting of the
shareholders and until their respective successors are chosen and qualified, or
in each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each agent shall retain his or her authority at the pleasure of
the Trustees.
4.5 President and Vice Presidents. The president shall be the chief executive
officer of the Trust. The president shall, subject to the control of the
Trustees, have general charge and supervision of the business of the Trust. Any
vice president shall have such duties and powers as shall be designated from
time to time by the Trustees.
4.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected,
he shall have the duties and powers specified in these By-Laws and, except as
the Trustees shall otherwise determine, preside at all meetings of the
shareholders and of the Trustees at which he or she is present and have such
other duties and powers as may be determined by the Trustees.
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4.7 Treasurer and Controller. The treasurer shall be the chief financial
officer of the Trust and subject to any arrangement made by the Trustees with a
bank or trust company or other organization as custodian or transfer or
shareholder services agent, shall be in charge of its valuable papers and shall
have such other duties and powers as may be designated from time to time by the
Trustees or by the president. If at any time there shall be no controller, the
treasurer shall also be the chief accounting officer of the Trust and shall have
the duties and powers prescribed the Trust and shall have the duties and powers
prescribed herein for the controller. Any assistant treasurer shall have such
duties and powers as shall be designated from time to time by the Trustees. The
controller, if any be elected, shall be the chief accounting officer of the
Trust and shall be in charge of its books of account and accounting records. The
controller shall be responsible for preparation of financial statements of the
Trust and shall have such other duties and powers as may be designated from time
to time by the Trustees or the president.
4.8 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the shareholders and the Trustees in books to be kept therefor,
which books shall be kept at the principal office of the Trust. In the absence
of the secretary from any meeting of shareholders or Trustees, an assistant
secretary, or if there be none or he or she is absent, a temporary clerk chosen
at the meeting shall record the proceedings thereof in the aforesaid books.
SECTION 5. RESIGNATION AND REMOVALS
Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the Chairman of the Board, the
president, the treasurer or the secretary or to a meeting of the Trustees. The
Trustees may remove any officer elected by them with or without cause by the
vote of a majority of the Trustees then in office. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee, officer,
or advisory board member resigning, and no officer or advisory board member
removed shall have any right to any compensation for any period following his or
her resignation or removal, or any right to damages on account of such removal.
SECTION 6. VACANCIES
A vacancy in any office may be filled at any time. Each successor shall
hold office for the unexpired term, and in the case of the president, the
treasurer and the secretary, until his or her successor is chosen and qualified,
or in each case until he or she sooner dies, resigns, is removed or becomes
disqualified.
SECTION 7. SHARES OF BENEFICIAL INTEREST
7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the event
that the Trustees authorize the issuance of share certificates, subject to the
provisions of Section 7.3, each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in such form as shall be
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prescribed from time to time by the Trustees. Such certificate shall be signed
by the president or a vice president and by the treasurer or an assistant
treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer or shareholder services agent or by a registrar, other than a Trustee,
officer or employee of the Trust. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the Trust
with the same effect as if he or she were such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the transfer or
shareholder services agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
SECTION 8. RECORD DATE
The Trustees may fix in advance a time, which shall not be more than 90
days before the date of any meeting of shareholders or the date for the payment
of any dividend or making of any other distribution to shareholders, as the
record date for determining the shareholders having the right to notice and to
vote at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on such
record date shall have such right, notwithstanding any transfer of shares on the
books of the Trust after the record date.
SECTION 9. SEAL
The seal of the Trust shall, subject to alteration by the Trustees,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the Trust and the year of its organization, cut or engraved
thereon; but, unless otherwise required by the Trustees, the seal shall not be
necessary to be placed on, and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by or on behalf of
the Trust.
SECTION 10. EXECUTION OF PAPERS
Except as the Trustees may generally or in particular cases authorize
the execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts and other obligations made, accepted or
endorsed by the Trust shall be signed, and any transfers
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of securities standing in the name of the Trust shall be executed, by the
president or by one of the vice presidents or by the treasurer or by whomsoever
else shall be designated for that purpose by the vote of the Trustees and need
not bear the seal of the Trust.
SECTION 11. FISCAL YEAR
The fiscal year of the Trust shall end on such date in each year as the
Trustees shall from time to time determine.
SECTION 12. PROVISIONS RELATING TO THE CONDUCT OF THE TRUST'S BUSINESS
12.1 Dealings with Affiliates. The Trust shall not purchase or retain
securities issued by any issuer if one or more of the holders of the securities
of such issuer or one or more of the officers or directors of such issuer is an
officer or Trustee of the Trust or officer or director of any organization,
association or corporation with which the Trust has an investment advisor's
contract ("investment advisor"), if to the knowledge of the Trust one or more of
such officers or Trustees of the Trust or such officers or directors of such
investment advisors owns beneficially more than one-half of one percent of the
shares or securities of such issuer and such officers, Trustees and directors
owning more than one-half of one percent of such shares or securities together
own beneficially more than five percent of such outstanding shares or
securities.
Each Trustee and officer of the Trust shall give notice to the
secretary of the identity of all issuers whose securities are held by the Trust
of which such officer or Trustee owns as much as one half of one percent of the
outstanding securities, and the Trust shall not be charged with the knowledge of
such holdings in the absence of receiving such notice if the Trust has requested
such information not less often than quarterly.
Subject to the provisions of the preceding paragraph, no officer,
Trustee or agent of the Trust and no officer, director or agent of any
investment advisor shall deal for or on behalf of the Trust with himself as
principal or agent, or with any partnership, association or corporation in which
he has a material financial interest; provided that the foregoing provisions
shall not prevent (a) officers and Trustees of the Trust from buying, holding or
selling shares in the Trust, or from being partners, officers or directors of or
financially interested in any investment advisor to the Trust or in any
corporation, firm or association which may at any time have a distributor's or
principal underwriter's contract with the Trust; (b) purchases or sales of
securities or other property if such transaction is permitted by or is exempt or
exempted from the provisions of the Investment Company Act of 1940 or any Rule
or Regulation thereunder and if such transaction does not involve any commission
or profit to any security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of the Trust or an
officer or director of the investment advisor, manager or principal underwriter
of the Trust; (c) employment of legal counsel, registrar, transfer agent,
shareholder services, dividend disbursing agent or custodian who is, or has a
partner, stockholder, officer or director who is, an officer or Trustee of the
Trust; (d) sharing statistical, research and management expenses, including
office hire and
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services, with any other company in which an officer or Trustee of the Trust is
an officer or director or financially interested.
12.2 Right to Engage in Business. Any officer or Trustee of the Trust, the
investment adviser, the manager, and any officers or directors of the investment
adviser or manager may have personal business interests and may encase in
personal business activities.
12.3 Dealing in Securities of the Trust. The Trust, the investment advisor,
any corporation, firm or association which may at any time have an exclusive
distributor's or principal underwriter's contract with the Trust (the
"distributor") and the officers and Trustees of the Trust and officers and
directors of every investment advisor and distributor, shall not take long or
short positions in the securities of the Trust, except that:
(a) the distributor may place orders with the Trust for its shares
equivalent to orders received by the distributor;
(b) shares of the Trust may be purchased at not less than net asset
value for investment by the investment advisor and by officers and directors of
the distributor, investment advisor, or the Trust and by any trust, pension,
profit-sharing or other benefit plan for such persons, no such purchase to be in
contravention of any applicable state or federal requirement.
12.4 Limitation on Certain Loans. The Trust shall not make loans to any
officer, Trustee or employee of the Trust or any investment advisor or
distributor or their respective officers, directors or partners or employees.
12.5 Custodian. All securities and cash owned by the Trust shall be
maintained in the custody of one or more banks or trust companies having
(according to its last published report) not less than two million dollars
($2,000,000) aggregate capital, surplus and undivided profits (any such bank or
trust company is hereinafter referred to as the "custodian"); provided, however,
the custodian may deliver securities as collateral on borrowings effected by the
Trust, provided, that such delivery shall be conditioned upon receipt of the
borrowed funds by the custodian except where additional collateral is being
pledged on an outstanding loan and the custodian may deliver securities lent by
the trust against receipt of initial collateral specified by the Trust. Subject
to such rules, regulations and orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may not permit any custodian to, deposit
all or any part of the securities owned by the Trust in a system for the central
handling of securities operated by the Federal Reserve Banks, or established by
a national securities exchange or national securities association registered
with said Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by said Commission, pursuant to which system all
securities of any particular class or series of any issue deposited with the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry, without physical delivery of such securities.
The Trust shall upon the resignation or inability to serve of its
custodian or upon change of the custodian:
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(a) in the case of such resignation or inability to serve use its best
efforts to obtain a successor custodian;
(b) require that the cash and securities owned by this corporation be
delivered directly to the successor custodian; and
(c) in the event that no successor custodian can be found, submit to
the shareholders, before permitting delivery of the cash and securities owned by
this Trust otherwise than to a successor custodian, the question whether or not
this Trust shall be liquidated or shall function without a custodian.
12.6 Limitations on Investment. Investment limitations are those set forth in
the Trust's Prospectus and Statement of Additional Information.
12.7 Reports to Shareholders. Distributions from Realized Gains. The Trust
shall send to each shareholder of record at least annually a statement of the
condition of the Trust and of the results of its operation, containing all
information required by applicable laws or regulations.
SECTION 13. AMENDMENTS
These By-Laws may be amended or repealed, in whole or in part, by a
majority of the Trustees then in office at any meeting of the Trustees, or by
one or more writings signed by such majority.
Last Amended: April 13, 1995
8
DISTRIBUTION AGREEMENT
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, The Capitol Mutual Funds ("Capitol Funds"), a
Massachusetts business trust, has agreed that Stephens Inc. (the "Distributor")
shall be, for the period of this Agreement, the exclusive distributor of the
units of beneficial interest in all classes of shares ("Shares") of the
investment portfolios of Capitol Funds listed on Schedule I (individually, a
"Fund" and collectively the "Funds"). Absent written notification to the
contrary by either Capitol Funds or the Distributor, each new investment
portfolio of Capitol Funds established in the future shall automatically become
a "Fund" for all purposes hereunder and shares of each new class established in
the future shall automatically become "Shares" for all purposes hereunder as if
set forth on Schedule I.
1. Services as Distributor.
1.1 The Distributor will act as agent for the distribution of Shares in
accordance with the instructions of Capitol Funds' Board of Trustees and Capitol
Funds' registration statement and prospectus then in effect under the Securities
Act of 1933, as amended, and will transmit promptly any orders received by it
for the purchase or redemption of Shares to Capitol Funds or its transfer agent.
1.2 The Distributor agrees to use appropriate efforts to solicit orders
for the sale of Shares and will undertake such advertising and promotion as it
believes appropriate in connection with such solicitation. Capitol Funds
understands that the Distributor is and may in the future be the distributor of
shares of other investment company portfolios ("Portfolios") including
Portfolios having investment objectives similar to those of the Funds. Capitol
Funds further understands that existing and future investors in the Funds may
invest in shares of such other Portfolios. Capitol Funds agrees that the
Distributor's duties to such Portfolios shall not be deemed in conflict with its
duties to Capitol Funds under this paragraph 1.2.
1.3 The Distributor shall, at its own expense, finance such activities
as it deems reasonable and which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current shareholders, and the printing and mailing of
sales literature. The Distributor shall be responsible for reviewing and
providing advice and counsel on all sales literature (e.g., advertisements,
brochures and shareholder communications) with respect to each of the Funds. In
addition, the Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Funds.
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1.4 All activities by the Distributor and its agents and employees as
distributor of Shares shall comply with all applicable laws, rules and
regulations, including, without limitation, all rules and regulations made or
adopted pursuant to the Investment Company Act of 1940 ("1940 Act") by the
Securities and Exchange Commission (the "SEC") or any securities association
registered under the Securities Exchange Act of 1934.
1.5 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by other circumstances of any kind,
Capitol Funds' officers may decline to accept any orders for, or make any sales
of Shares until such time as those officers deem it advisable to accept such
orders and to make such sales.
1.6 Capitol Funds agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the registration or
qualification of Shares for sale in such states as the Distributor may designate
to Capitol Funds and Capitol Funds may approve, and Capitol Funds shall pay all
fees and other expenses incurred in connection with such registration or
qualification.
1.7 Capitol Funds shall furnish from time to time, for use in
connection with the sale of Shares, such information with respect to the Funds
and Shares as the Distributor may reasonably request; and Capitol Funds warrants
that the statements contained in any such information shall fairly show or
represent what they purport to show or represent. Capitol Funds shall also
furnish the Distributor upon request with: (a) audited annual and unaudited
semi-annual statements of Capitol Funds' books and accounts with respect to each
Fund, and, (b) from time to time such additional information regarding the
Funds' financial condition as the Distributor may reasonably request.
1.8 The Distributor may be compensated or reimbursed for all or a
portion of the expenses described above to the extent permitted by a
distribution plan adopted by Capitol Funds on behalf of a Fund pursuant to Rule
12b-1 under the 1940 Act. No provision of this Agreement shall be deemed to
prohibit any payments by a Fund to the Distributor or by a Fund or the
Distributor to investment dealers, banks or other financial institutions through
whom shares of the Fund are sold where such payments are made under a
distribution plan adopted by Capitol Funds on behalf of such Fund pursuant to
Rule 12b-1 under the 1940 Act. In addition, Capitol Funds shall pay to the
Distributor the proceeds from any contingent deferred sales charge imposed on
the redemption of the shares as specified in the Fund's Registration Statement.
1.9 The Distributor will execute and deliver agreements with
broker/dealers, financial institutions and other industry professionals based on
the forms attached hereto or based on the additional forms of agreement approved
from time to time by Capitol Funds' Board of Trustees with respect to the
various classes of shares of the Funds, including but not limited to forms of
sales support agreements and shareholder servicing agreements approved in
connection with a distribution and/or servicing plan approved in accordance with
Rule 12b-1 under the 1940 Act.
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2. Representations; Indemnification.
2.1 Capitol Funds represents to the Distributor that all registration
statements and prospectuses filed by Capitol Funds with the SEC under the
Securities Act of 1933, as amended ("Act"), with respect to Shares have been
prepared in conformity with the requirements of said Act and rules and
regulations of the SEC thereunder. As used in this Agreement, the terms
"registration statement" and "prospectus" shall mean any registration statement
and then current prospectus (together with any related then current statement of
additional information) filed with the SEC with respect to Shares, and any
amendments and supplements thereto which at any time shall have been filed
therewith. Capitol Funds represents and warrants to the Distributor that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with said Act and the rules and regulations of the SEC; that all
statements of fact contained in any such registration statement and prospectus
will be true and correct when such registration statement and prospectus become
effective; and that neither any registration statement nor any prospectus when
any registration statement becomes effective will include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading to a purchaser of
Shares. Capitol Funds may, but shall not be obligated to, propose from time to
time such amendment or amendments to any registration statement and such
supplement or supplements to any prospectus which in light of future
developments, may, in the opinion of Capitol Funds' counsel, be necessary or
advisable. Capitol Funds shall promptly notify the Distributor of any advice
given to it by Capitol Funds' counsel regarding the necessity or advisability so
to amend or supplement such registration statement or prospectus. If Capitol
Funds shall not propose such amendment or amendments and/or supplement or
supplements within fifteen days after receipt by Capitol Funds of a written
request from the Distributor to do so, the Distributor may, at its option,
terminate this Agreement. Capitol Funds shall not file any amendment to any
registration statement or supplement to any prospectus without giving the
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit Capitol Funds' right
to file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as Capitol Funds may deem
advisable, such right being in all respects absolute and unconditional.
2.2 Capitol Funds authorizes the Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of Shares and represented by Capitol Funds as being the then current form of
prospectus. Capitol Funds agrees to indemnify, defend and hold the Distributor,
its several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers and
directors, or any such controlling person, may incur under the Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in any
registration statement or prospectus or necessary to
3
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make any statement in such documents not misleading; provided, however, that
Capitol Funds' agreement to indemnify the Distributor, its officers or
directors, and any such controlling person shall not be deemed to cover any
claims, demands, liabilities or expenses arising out of any untrue statement or
alleged untrue statement or omission or alleged omission made in any
registration statement or prospectus or in any financial or other statements, in
reliance upon and in conformity with, any information furnished to Capitol Funds
by the Distributor or any affiliate thereof and used in the preparation thereof;
and further provided that Capitol Funds' agreement to indemnify the Distributor
and Capitol Funds' representations and warranties herein set forth shall not be
deemed to cover any liability to Capitol Funds or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of the
Distributor's reckless disregard of its obligations and duties under this
Agreement. Capitol Funds' agreement to indemnify the Distributor, its officers
and directors, and any such controlling person, as aforesaid, is expressly
conditioned upon Capitol Funds' being notified of any action brought against the
Distributor, its officers or directors, or any such controlling person, such
notification to be given by letter or by telegram addressed to Capitol Funds at
its principal office and sent to Capitol Funds by the person against whom such
action is brought, within a reasonable period of time after the summons or other
first legal process shall have been served. The failure to so notify Capitol
Funds of any such action shall not relieve Capitol Funds from any liability
which Capitol Funds may have to the person against whom such action is brought
by reason of any such untrue, or allegedly untrue, statement or omission, or
alleged omission, otherwise than on account of Capitol Funds' indemnity
agreement contained in this paragraph 2.2. Capitol Funds will be entitled to
assume the defense of any suit brought to enforce any such claim, demand or
liability, but, in such case, such defense shall be conducted by counsel of good
standing chosen by Capitol Funds and approved by the Distributor, which approval
shall not unreasonably be withheld. In the event Capitol Funds elects to assume
the defense of any such suit and retain counsel of good standing approved by the
Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case Capitol
Funds does not elect to assume the defense of any such suit, or in case the
Distributor reasonably does not approve of counsel chosen by Capitol Funds,
Capitol Funds will reimburse the Distributor, its officers and directors, or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by the Distributor or them.
Capitol Funds' indemnification agreement contained in this paragraph 2.2 and
Capitol Funds' representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Distributor, its officers and directors, or any controlling
person, and shall survive the delivery of any Shares. This agreement of
indemnity will inure exclusively to the Distributor's benefit, to the benefit of
its several officers and directors, and their respective estates, and to the
benefit of the controlling persons and their successors. Capitol Funds agrees
promptly to notify the Distributor of the commencement of any litigation or
proceedings against Capitol Funds or any of its officers or trustees in
connection with the issue and sale of any Shares.
2.3 The Distributor agrees to indemnify, defend and hold Capitol Funds,
its several officers and trustees, and any person who controls Capitol Funds
within the meaning of Section 15 of the Act free and harmless from and against
any and all claims, demands, liabilities
4
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and expenses (including the costs of investigation or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which Capitol Funds, its officers or trustees or any such controlling person,
may incur under the Act or under common law or otherwise, but only to the extent
that such liability or expense incurred by Capitol Funds, its officers or
trustees, or such controlling person resulting from such claims or demands,
shall arise out of or be based upon any untrue, or alleged untrue, statement of
a material fact contained in information furnished by the Distributor or any
affiliate thereof to Capitol Funds or its counsel and used in Capitol Funds'
registration statement or corresponding statements made in the prospectus, or
shall arise out of or be based upon any omission, or alleged omission, to state
a material fact in connection with such information furnished by the Distributor
or any affiliate thereof to Capitol Funds or its counsel required to be stated
in such answers or necessary to make such information not misleading. The
Distributor's agreement to indemnify Capitol Funds, its officers and trustees,
and any such controlling person, as aforesaid, is expressly conditioned upon the
Distributor's being notified of any action brought against Capitol Funds, its
officers or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Distributor at its principal office
in Little Rock, Arkansas and sent to the Distributor by the person against whom
such action is brought, within a reasonable period of time after the summons or
other first legal process shall have been served. The Distributor shall have the
right to control the defense of such action, with counsel of its own choosing,
satisfactory to Capitol Funds, if such action is based solely upon such alleged
misstatement or omission on the Distributor's part or any affiliate thereof, and
in any other event Capitol Funds, its officers or trustees or such controlling
person shall each have the right to participate in the defense or preparation of
the defense of any such action. The failure so to notify the Distributor of any
such action shall not relieve the Distributor or any affiliate thereof from any
liability which the Distributor or any affiliate thereof may have to Capitol
Funds, its officers or trustees, or to such controlling person by reason of any
such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of the Distributor's indemnity agreement contained in
this paragraph 2.3.
2.4 No Shares shall be offered by either the Distributor or Capitol
Funds under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by Capitol Funds if and
so long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Act, or if and so long as a current prospectus, as required by Section 10(b)
of said Act, as amended, is not on file with the SEC; provided, however, that
nothing contained in this paragraph 2.4 shall in any way restrict or have any
application to or bearing upon Capitol Funds' obligation to repurchase Shares
from any shareholder in accordance with the provisions of Capitol Funds'
prospectus or Declaration of Trust.
2.5 Capitol Funds agrees to advise the Distributor as soon as
reasonably practical:
(a) of any request by the SEC for amendments to the
registration statement or prospectus then in effect;
(b) of the issuance by the SEC of any stop order suspending the
effectiveness
5
<PAGE>
of the registration statement or prospectus then in effect or of the initiation
of any proceeding for that purpose;
(c) of the happening of any event that makes untrue any statement
of a material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration statement
or prospectus in order to make the statements therein not misleading;
(d) of all actions of the SEC with respect to any amendment to any
registration statement or prospectus which may from time to time be filed with
the SEC; and
(e) if a current prospectus is not on file with the SEC.
For purposes of this section, informal requests by or acts of the Staff
of the SEC shall not be deemed actions of or requests by the SEC.
3. Confidentiality.
The Distributor agrees on behalf of itself and its employees to treat
confidentially and as proprietary information of Capitol Funds, all records and
other information relative to the Funds and/or Capitol Funds and its prior,
present or potential shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by Capitol
Funds, which approval shall not be unreasonably withheld and may not be withheld
where the Distributor may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by Capitol Funds.
4. Limitations of Liability.
4.1 Except as provided in paragraph 2.3, the Distributor shall not be
liable for any error of judgment or mistake or law or for any loss suffered by
Capitol Funds or any Fund in connection with matters to which this agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations and duties under this agreement.
4.2 The names "The Capitol Mutual Funds" and "Trustees of The Capitol
Mutual Funds" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated January 22, 1990, which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of the Commonwealth of Massachusetts and at the principal office of Capitol
Funds. The obligations of "The Capitol Mutual Funds" entered into, in the name
or on behalf thereof, by any of Capitol Funds' representatives or agents are
made not individually, but in such capacities, and are not binding upon any of
Capitol Funds' Shareholders, or representatives of Capitol Funds personally, but
bind only Capitol Funds Property, and all persons dealing with any class of
Shares of Capitol Funds Property, and all persons dealing with any class of
Shares of
6
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Capitol Funds must look solely to Capitol Funds Property belonging to such class
for the enforcement of any claims against Capitol Funds.
5. Term.
This agreement shall become effective on the date of its execution and,
unless sooner terminated as provided herein, shall continue thereafter with
respect to each Fund for successive annual periods, provided such continuance is
specifically approved at least annually by (i) Capitol Funds' Board of Trustees
or (ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Fund, provided that in either event the continuance is
also approved by the majority of Capitol Funds' Trustees who are not parties to
this agreement or interested persons (as defined in the 1940 Act) of any such
party, by vote cast in person at a meeting called for the purpose of voting on
such approval. This agreement is not assignable and is terminable with respect
to a Fund, without penalty, on not less than sixty days' notice, by Capitol
Funds' Board of Trustees, by vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of such Fund, or by the Distributor. This
agreement will also terminate automatically in the event of its assignment (as
defined in the 1940 Act).
6. Miscellaneous.
6.1 No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
6.2 This agreement shall be governed by the laws of the State of
Arkansas.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place indicated below,
whereupon it shall become a binding agreement between us.
Yours very truly,
THE CAPITOL MUTUAL FUNDS
By: /s/ A. Max Walker
---------------------
Name: A. Max Walker
Title: President and Chairman of the
Board
7
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Accepted:
STEPHENS INC.
By: /s. R.Greg Feltus
------------------------
Name: R. Greg Feltus
Title: Senior Vice President
Dated as of : May 1, 1994
8
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SCHEDULE I
Cash Reserves
Money Market Reserves
Treasury Reserves
Government Reserves
Tax Free Reserves
Dated: May 1, 1994
Amended: February 4, 1998
9
ADMINISTRATION AGREEMENT
This ADMINISTRATION AGREEMENT (the "Agreement") is made as of May 1,
1994 by and between STEPHENS INC. ("Stephens") and THE CAPITOL MUTUAL FUNDS,
a Massachusetts business trust ("Capitol Funds").
WHEREAS, Capitol Funds is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, Capitol Funds desires to retain Stephens to render certain
administrative services for the investment portfolios of Capitol Funds listed on
Schedule I (individually, a "Fund" and collectively, the "Funds"), and Stephens
is willing to render such services; and
WHEREAS, Capitol Funds is retaining, pursuant to a separate
Co-Administration Agreement, The Boston Company Advisors, Inc. ("Boston
Advisors") to perform certain other administrative services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. Capitol Funds hereby appoints Stephens to act as
Administrator of the Funds and Stephens hereby accepts such appointment and
agrees to render such services and duties set forth in Paragraph 3, for the
compensation and on the terms herein provided. Absent written notification to
the contrary by either Capitol Funds or Stephens, each new investment portfolio
established in the future by Capitol Funds shall automatically become a "Fund"
for all purposes hereunder as if listed on Schedule I.
2. Delivery of Documents. Capitol Funds has furnished Stephens with copies
properly certified or authenticated of each of the following:
(a) The Capitol Funds' most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (the "Registration Statement") under the
Securities Act of 1933, as amended, and under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") relating to the Funds' units or
shares (the "Shares");
(b) The Funds' most recent Prospectus(es); and
(c) The Funds' most recent Statement(s) of Additional Information.
Capitol Funds will furnish Stephens from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, Capitol Funds will provide Stephens with any other
documents that Stephens may reasonably request and
1
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will notify Stephens as soon as possible of any matter materially affecting
Stephens' performance of its services under this Agreement.
3. Duties as Administrator. Subject to the supervision and direction of
the Board of Trustees of Capitol Funds, Stephens, as Administrator, will assist
in supervising various aspects of Capitol Funds' administrative operations and
undertakes to perform the following specific services from and after the
effective date of this Agreement:
(a) Maintaining office facilities (which may be in the offices of
Stephens or a corporate affiliate);
(b) Furnishing statistical and research data, data processing services,
clerical services, and internal executive and administrative services and
stationery and office supplies in connection with the foregoing;
(c) Furnishing corporate secretarial services, including coordinating
the preparation and distribution of materials for Board of Trustees meetings;
(d) Providing the services of certain persons who may be appointed as
officers of Capitol Funds by Capitol Funds' Board of Trustees;
(e) Coordinating the provision of legal advice and counsel to Capitol
Funds with respect to regulatory matters, including monitoring regulatory and
legislative developments which may affect Capitol Funds and assisting in the
strategic response to such developments, counseling and assisting Capitol Funds
in routine regulatory examinations or investigations of Capitol Funds, and
working closely with outside counsel to Capitol Funds in connection with any
litigation in which Capitol Funds is involved;
(f) Coordinating the preparation of reports to Capitol Funds'
shareholders of record and the SEC including, but not necessarily limited to,
Annual Reports and Semi-Annual Reports to Shareholders and on Form N-SAR and
Notices pursuant to Rule 24f-2 under the 1940 Act;
(g) Coordinating with Capitol Funds and its Distributor regarding the
jurisdictions in which the Shares of Capitol Funds shall be registered or
qualified for sale and, in connection therewith, being responsible for the
registration or qualification and the maintenance of such registration or
qualification of Shares for sale under the securities laws of any state. Payment
of share registration fees and any fees for qualifying or continuing the
qualification of Capitol Funds or any Fund as a dealer or broker shall be made
or reimbursed by Capitol Funds or that Fund, respectively;
(h) Preparing and filing on a timely basis various reports,
registration statements and post-effective amendments thereto and other
documents required by federal, state and other applicable laws and regulations
other than those filed or required to be filed by the Adviser, Boston Advisors,
Transfer Agent or Custodian;
2
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(i) Preparing and filing on a timely basis Capitol Funds' Rule 24f-2
Notice;
(j) Monitoring the development and implementation of compliance
procedures for Capitol Funds which will include, among other matters, monitoring
each Fund's status as a regulated investment company under Sub-Chapter M of the
Internal Revenue Code of 1986, as amended, and compliance by each Fund with its
investment objective, policies, restrictions, tax matters and applicable laws
and regulations; and
(k) Generally assisting in all aspects of Capitol Funds' operations.
In performing all services under this Agreement, Stephens shall (a) act in
conformity with Capitol Funds' Agreement and Declaration of Trust and the
By-Laws; the 1940 Act, the Investment Advisers Act of 1940 and other applicable
laws, as the same may be amended from time to time; and Capitol Funds'
Registration Statement, as such Registration Statement may be amended from time
to time, (b) consult and coordinate with legal counsel for Capitol Funds, as
necessary and appropriate, and (c) advise and report to Capitol Funds and its
legal counsel, as necessary or appropriate, with respect to any compliance or
other matters that come to its attention.
In connection with its duties under this Paragraph 3, Stephens may, at its
own expense, enter into sub-administration agreements with other service
providers, provided that each such service provider agrees with Stephens to
comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. Stephens will provide Capitol Funds with a copy of each
sub-administration agreement it executes relating to Capitol Funds. Stephens
will be liable for acts or omissions of any such sub-administrators under the
standards of care provided herein under Paragraph 5.
In addition to the services specifically identified above, Stephens shall
coordinate the provision of services to Capitol Funds by Boston Advisors, the
Transfer Agent and the Custodian.
4. Compensation. Stephens shall bear all expenses in connection with the
performance of its services under this Agreement, except those enumerated in
Paragraph 4(b) below.
(a) Stephens will from time to time employ or associate with itself
such person or persons as Stephens may believe to be particularly suited to
assist it in performing services under this Agreement. Such person or persons
may be officers and employees who are employed by both Stephens and Capitol
Funds. The compensation of such person or persons shall be paid by Stephens and
no obligation shall be incurred on behalf of Capitol Funds in such respect.
(b) Stephens shall not be required to pay any of the following expenses
incurred by Capitol Funds: investment advisory expenses, costs of printing and
mailing stock certificates, prospectuses, reports and notices; interest on
borrowed money; brokerage fees and commissions; taxes and fees payable to
Federal, state and other governmental agencies; fees of Trustees of Capitol
Funds who are not affiliated with Stephens; outside auditing expenses; outside
legal
3
<PAGE>
expenses; fees of any other service provider to Capitol Funds (other than a
subadministrator engaged pursuant to Paragraph 3, and except for transmitting
the fees payable to Boston Advisors pursuant to Paragraph 3(d)); or other
expenses not specified in this Section 4 which may be properly payable by
Capitol Funds and which are approved by Capitol Funds' President or Treasurer.
(c) For the services to be rendered, the facilities to be furnished and
the payments to be made by Stephens, as provided for in this Agreement, Stephens
shall be compensated by Capitol Funds in accordance with the terms set forth in
the Fee Letter Agreement dated as of May 1, 1994 between Capitol Funds, Stephens
and Boston Advisors, as the same may be amended from time to time (the "Fee
Letter Agreement") provided, however, that any amendments to the Fee Letter
Agreement shall be presented for approval or ratification by Capitol Funds at
the next regularly scheduled Board meeting.
(d) Stephens shall be authorized to receive, as agent for Boston
Advisors, the fees payable by Capitol Funds to Boston Advisors pursuant to the
Fee Letter Agreement for services provided by Boston Advisors under its
Co-Administration Agreement, and shall promptly forward such fees to Boston
Advisors, provided that it shall only be required to forward amounts actually
received from Capitol Funds and shall have no other duty to pay the same.
5. Limitation of Liabilities; Indemnification.
(a) Stephens shall not be liable for any error of judgment or mistake
of law or for any loss suffered by Capitol Funds in connection with the
performance of its obligations and duties under this Agreement, except a loss
resulting from Stephens' willful misfeasance, bad faith or gross negligence in
the performance of such obligations and duties, or by reason of its reckless
disregard thereof. Any person, even though also an officer, Trustee, partner,
employee or agent of Stephens, shall be deemed, when rendering services to
Capitol Funds or acting on any business of Capitol Funds (other than services or
business in connection with Stephens' duties as Administrator hereunder), to be
acting solely for Capitol Funds and not as an officer, Trustee, partner,
employee or agent or one under the control or discretion of Stephens even though
paid by it.
(b) Capitol Funds, on behalf of each Fund, will indemnify Stephens
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit relating to the particular Fund
and not resulting from the willful misfeasance, bad faith or gross negligence of
Stephens in the performance of such obligations and duties or by reason of its
reckless disregard thereof. Stephens will not confess any claim or settle or
make any compromise in any instance in which Capitol Funds will be asked to
provide indemnification, except with Capitol Funds' prior written consent. Any
amounts payable by Capitol Funds under this Section 5(b) shall be satisfied only
against the assets of the Fund involved in the claim, demand, action or suit and
not against the assets of any other investment portfolio of Capitol Funds.
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6. Termination of Agreement.
(a) This Agreement shall become effective on May 1, 1994 and shall
remain in full force and effect unless terminated pursuant to the provisions of
subsection (b) of this Section 6.
(b) This Agreement may be terminated at any time without payment of any
penalty, upon 60 days written notice, by vote of the holders of a majority of
the Board of Trustees of Capitol Funds or by Stephens. Stephens will cooperate
with and assist Capitol Funds, its agents and any successor administrator or
administrators in the substitution/conversion process.
(c) Section 8 shall survive this Agreement's termination.
7. Amendments. No provision of this Agreement may be changed, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, discharge or termination is sought.
8. Confidentiality. All books, records, information and data pertaining to
the business of Capitol Funds, its prior, present or potential shareholders and
the Adviser's customers that are exchanged or received pursuant to the
performance of Stephens' duties under this Agreement shall remain confidential
and shall not be disclosed to any other person, except as specifically
authorized by Capitol Funds or as may be required by law, and shall not be used
for any purpose other than performance of its responsibilities and duties
hereunder.
9. Service to Other Companies or Accounts.
Capitol Funds acknowledges that Stephens now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts, and as investment adviser, sub-investment adviser and/or administrator
to other investment companies or series of investment companies, and Capitol
Funds has no objection to Stephens' so acting. Capitol Funds further
acknowledges that the persons employed by Stephens to assist in the performance
of Stephens' duties under this Agreement may not devote their full time to such
service and nothing contained in this Agreement shall be deemed to limit or
restrict the right of Stephens or any affiliate of Stephens to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
10. Miscellaneous
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to Capitol Funds or Stephens shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
5
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To Capitol Funds:
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
To Stephens:
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank, Jr.
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable without the written consent of the
other party.
(c) This Agreement shall be construed in accordance with the laws of
the State of Arkansas.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(f) This Agreement and the Fee Letter Agreement constitute the entire
agreement between the parties hereto with respect to the matters described
herein.
(g) The names "The Capitol Mutual Funds" and "Trustees of The Capitol
Mutual Funds" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated January 22, 1990 which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of The Commonwealth of Massachusetts and at the principal office of Capitol
Funds. The obligations of "The Capitol Mutual Funds" entered into in the name or
on behalf thereof by any of Capitol Funds' Officers, representatives or agents
are made not individually but in such capacities, and are not binding upon any
of Capitol Funds' Shareholders, officers, representatives or agents of Capitol
Funds personally, but bind only Capitol Funds Property (and a Fund's Shares of
Capitol Funds must look solely to Capitol Funds Property belonging to such
Fund's Shares for the enforcement of any claims against Capitol Funds.)
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
STEPHENS INC.
By: /s/R. Greg Feltus
-----------------------------
Name: R. Greg Feltus
Title: Senior Vice President
THE CAPITOL MUTUAL FUNDS
By: /s/ A. Max Walker
-----------------------------------------
Name: A. Max Walker
Title: President and Chairman of the Board
7
<PAGE>
SCHEDULE I
1. Nations Cash Reserves
2. Nations Treasury Reserves
3. Nations Government Reserves
4. Nations Municipal Reserves
5. Nations Money Market Reserves
Amended: February 4, 1998
8
CO-ADMINISTRATION AGREEMENT
THIS CO-ADMINISTRATION AGREEMENT (the "Agreement") is made as of May 1,
1994 by and between THE BOSTON COMPANY ADVISORS, INC., a Massachusetts
corporation ("Boston Advisors"), and THE CAPITOL MUTUAL FUNDS, a Massachusetts
business trust, (the "Trust").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust desires to retain Boston Advisors to render certain
fund accounting and related administrative services for the Trust's investment
portfolios listed on Schedule I (individually, a "Fund" and collectively, the
"Funds") to provide administrative services, and Boston Advisors is willing to
render such services; and
WHEREAS, the Trust is retaining pursuant to a separate Administration
Agreement, Stephens Inc. ("Stephens") to provide certain other administration
services.
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints Boston Advisors to act as
Co-Administrator of the Funds, and Boston Advisors hereby accepts such
appointment and agrees to render such services and duties set forth in Paragraph
3, for the compensation and on the terms herein provided. Absent written
notification to the contrary by either the Trust or Boston Advisors, each new
investment portfolio established in the future by the Trust shall automatically
become a "Fund" for all purposes hereunder as if listed on Schedule I.
2. Delivery of Documents. The Trust has furnished Boston Advisors with
copies properly certified or authenticated of each of the following:
(a) The Trust's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A (the "Registration Statement") under
the Securities Act of 1933, as amended, and under the 1940 Act (File Nos.
33-33144 and 811- 6030), as filed with the Securities and Exchange
Commission (the "SEC") on August 30, 1993 relating to the Funds' units or
shares (the "Shares");
(b) The Funds' most recent Prospectus(es); and
(c) The Funds' most recent Statement(s) of Additional Information.
The Trust will furnish Boston Advisors from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing. Furthermore, the Trust will provide Boston Advisors with any other
documents that Boston Advisors may reasonably
<PAGE>
request and will notify Boston Advisors as soon as possible of any matter
materially affecting Boston Advisors' performance of its services under this
Agreement.
3. Duties as Co-Administrator. Subject to the supervision and direction of
the Board of Trustees of the Trust, Boston Advisors, as Co-Administrator, will
assist in supervising various aspects of the Trust's administrative operations
and undertakes to perform the following specific services, from and after the
effective date of this Agreement:
(a) Providing accounting and bookkeeping services (including the
maintenance for the periods prescribed by Rule 31a-2 under the 1940 Act of
such accounts, books and records of the Trust as may be required by Section
31 (a) of the 1940 Act and the rules thereunder). Boston Advisors further
agrees that all such records which it maintains for the Trust are the
property of the Trust and further agrees to surrender promptly to the Trust
any of such records upon the Trust's request:
(b) Providing the services of certain persons who may be appointed as
Treasurer or Assistant Treasurer of the Trust by the Trust's Board of
Trustees;
(c) Valuing each Fund's assets and calculating the net asset value and
the net income of the shares of each Fund in accordance with the Trust's
current Prospectus(es) and resolutions of the Trust's Board of Trustees,
provided, that in performing such services, Boston Advisors shall obtain
security market quotes from independent pricing services, or it such quotes
are unavailable, obtain such prices from the Adviser
(d) Accumulating information for reports to the Trust's shareholders
of record and the SEC including, but not necessarily limited to, Annual
Reports and Semi-Annual Reports to Shareholders and on Form NSAR and
Notices pursuant to Rule 24f-2 under the 1940 Act;
(e) Preparing and filing on a timely basis the Trust's tax returns and
other tax filings;
(f) On the basis of information provided by the Trust's investment
adviser to Boston Advisors, performing monthly compliance testing with
regard to the items specified on Annex A, attached hereto and incorporated
herein;
(g) Preparing and furnishing the Trust with monthly broker security
transactions summaries and monthly security transaction listings and (at
the Trust's request) with performance information (including yield and
total return information) calculated in accordance with applicable U.S.
securities laws and reporting to external databases such information as may
reasonably be requested; and
(h) Assisting the Trust and its agents in their accumulation and
preparation of materials for Board of Trustees meetings and for regulatory
examinations and inspections of the Trust, however only to the extent such
materials relate to the services being performed for the Trust by Boston
Advisors.
In performing all services under this Agreement, Boston Advisors
shall (a) act in conformity with the Trust's Declaration of Trust and By-Laws;
the 1940 Act, the Investment
2
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Advisers Act of 1940 and other applicable laws, as the same may be amended from
time to time: and the Trust's Registration Statement, as such Registration
Statement may be amended from time to time, (b) consult and coordinate with
legal counsel for the Trust, as necessary and appropriate, and (c) advise and
report to the Trust and its legal consult as necessary or appropriate, with
respect to any compliance or other matters that come to its attention.
In connection with its duties under this Paragraph 3, Boston
Advisors may, at its own expense enter into sub co-administration agreements
with other service providers, provided that each such service provider agrees
with Boston Advisors to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. Boston Advisors will provide the
Trust with a copy of each sub co-administration agreement it executes relating
to the Trust. Boston Advisors will be liable for acts or omissions of any such
sub co-administrators under the standards of care provided herein under
Paragraph 5.
In performing its services under this Agreement, Boston Advisors
shall cooperate and coordinate with Stephens as necessary and appropriate and
shall provide such information as is reasonably necessary or appropriate for
Stephens to perform its responsibilities to the Trust.
4. Compensation. Boston Advisors shall bear all expenses in connection with
the performance of its services under this Agreement, except those enumerated in
4(b) below.
(a) Boston Advisors will from time to time employ or associate with
itself such person or persons as Boston Advisors may believe to be
particularly suited to assist it in performing services under this
Agreement. Such person or persons may be officers and employees who are
employed by both Boston Advisors and the Trust. The compensation of such
person or persons shall be paid by Boston Advisors and no obligation shall
be incurred on behalf of the Trust in such respect.
(b) Boston Advisors shall not be required to pay any of the following
expenses incurred by the Trust; investment advisory expenses; costs of
printing and mailing stock certificates, prospectuses, reports and notices;
interest on borrowed money; brokerage fees and commissions; taxes and fees
payable to Federal, state and other governmental agencies; fees of Trustees
of the Trust who are not affiliated with Boston Advisors; outside auditing
expenses; outside legal expenses; fees of independent pricing services
utilized by Boston Advisors to value each Fund's assets; or other expenses
not specified in this Section 4 which may be properly payable by the Trust
and which are approved by the Trust's President or Treasurer.
(c) For the services to be rendered, and expenses assumed by (i)
Boston Advisors under this Agreement, and (ii) Stephens under the
Administration Agreement with the Trust, the Trust will pay to Stephens,
for its services and as agent for Boston Advisors, a monthly fee in
accordance with the terms set forth in the Fee Letter Agreement dated as of
May 1, 1994 among the Trust, Boston Advisors and Stephens as the same may
be amended from time to time (the "Fee Letter Agreement") provided,
however, that any amendments to the Fee Letter Agreement shall be presented
for approval or ratification by the Trustees at the next regularly
scheduled Board meeting.
3
<PAGE>
(d) The Trust will compensate Boston Advisors for its services
rendered pursuant to this Agreement in accordance with the fees set forth
above. Such fees do not include out-of-pocket disbursements by Boston
Advisors for services that are not specifically identified in Paragraph 3
above. Such out-of-pocket disbursements may include, but are not limited
to, costs associated with postage (including overnight services),
telephone, telecommunications (including facsimiles), duplicating, pricing
services and forms and supplies. Boston Advisors shall not be obligated to
incur any out-of-pocket disbursements for services that are not
specifically identified in Paragraph 3 above, unless reasonably
satisfactory arrangements for the payment of such expenses are agreed to by
the Company and Boston Advisors, prior to such expenses being incurred.
5. Limitation of Liability; Indemnification
(a) Boston Advisors shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust in connection with the
performance of its obligations and duties under this Agreement, except a
loss resulting from Boston Advisors' willful misfeasance, bad faith or
gross negligence in the performance of such obligations and duties, or by
reason of its reckless disregard thereof. Any person, even though also an
officer, Trustee, partner, employee or agent of Boston Advisors, shall be
deemed, when rendering services to the Trust or acting on any business of
the Trust (other than services or business in connection with Boston
Advisors' duties as Co-Administrator hereunder), to be acting solely for
the Trust and not as an officer, Trustee, partner, employee or agent or one
under the control or discretion of Boston Advisors even though paid by it.
(b) The Trust, on behalf of each Fund, will indemnify Boston Advisors
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit relating to the particular
Fund and not resulting from the willful misfeasance, bad faith or gross
negligence of Boston Advisors in the performance of such obligations and
duties or by reason of its reckless disregard thereof. Boston Advisors will
not confess any claim or settle or make any compromise in any instance in
which the Trust will be asked to provide indemnification, except with the
Trust's prior written consent. Any amounts payable by the Trust under this
Section 5(b) shall be satisfied only against the assets of the Fund
involved in the claim, demand, action or suit and not against the assets of
any other investment portfolio of the Trust.
6. Termination of Agreement.
(a) This Agreement shall become effective May 1, 1994 and shall remain
in full force and effect unless terminated pursuant to the provisions of
subsection (b) of this Section 6.
(b) This Agreement may be terminated at any time without payment of
any penalty, upon 60 days' written notice, by vote of the holders of a
majority of the Board of Trustees of the Trust or by Boston Advisors.
Boston Advisors will cooperate with and assist the
4
<PAGE>
Trust, its agents and any successor administrator or administrators in the
substitution/conversion process.
(c) Section 8 shall survive this Agreement's termination.
7. Amendments. No provision of this Agreement may be changed, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, discharge or termination is sought.
8. Confidentiality. All books, records, information and data pertaining to
the business of the Trust, its prior, present or potential shareholders and the
Adviser's customers that are exchanged or received pursuant to the performance
of Boston Advisors' duties under this Agreement shall remain confidential and
shall not be disclosed to any other person, except as specifically authorized by
the Trust or as may be required by law, and shall not be used for any purpose
other than performance of its responsibilities and duties hereunder.
9. Service to Other Companies or Accounts. The Trust acknowledges that
Boston Advisors now acts, will continue to act and may act in the future as
investment adviser to fiduciary and other managed accounts, and as investment
adviser, sub-investment adviser and/or administrator to other investment
companies or series of investment companies, and the Trust has no objection to
Boston Advisors' so acting. The Trust further acknowledges that the persons
employed by Boston Advisors to assist in the performance of Boston Advisors'
duties under this Agreement may not devote their full time to such service and
nothing contained in this Agreement shall be deemed to limit or restrict the
right of Boston Advisors or any affiliate of Boston Advisors to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
10. Miscellaneous
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Trust or Boston Advisors shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Trust:
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
Attention: Richard H. Blank, Jr.
To Boston Advisors:
The Boston Company Advisors, Inc
One Exchange Place, 025-004B
Boston, MA 02109
Attention: Patricia L. Bickimer, Esq.
5
<PAGE>
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(f) This Agreement and the Fee Letter Agreement constitute the entire
agreement between the parties hereto with respect to the matters described
herein.
(g) The names "The Capitol Mutual Funds" and "Trustees of The Capitol
Mutual Funds" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under
a Declaration of Trust dated January 22, 1990 which is hereby referred to
and a copy of which is on file at the office of the State Secretary of The
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of "The Capitol Mutual Funds" entered into in the name or on
behalf thereof by any of the Trustees, Officers, representatives or agents
are made not individually but in such capacities and are not binding upon
any of the Trustees, Shareholders, officers, representatives or agents of
the Trust personally, but bind only the Trust Property, and all persons
dealing with a Fund's Shares of the Trust must look solely to the Trust
Property belonging to such Fund's Shares for the enforcement of any claims
against the Trust,
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date,
first written above.
THE BOSTON COMPANY ADVISORS, INC.
By:____________________________________
Name:
Title:
THE CAPITOL MUTUAL FUNDS
By:____________________________________
Name:
Title:
6
<PAGE>
ANNEX A
Boston Advisors shall perform the following compliance tests on a monthly
basis (based only on information received from the Trust's investment adviser,
the accuracy of which will not be independently verified by Boston Advisors):
1. The following tests derived from Sub-Chapter M of the Internal
Revenue Code of 1986, as amended:
(a) 90% gross income test;
(b) 30% short-three test; and
(c) asset diversification test.
2. The following tests derived from the Investment Company Act of 1940, as
amended:
(a) Asset diversification tests for both money market funds and
non-money market funds.
<PAGE>
SCHEDULE I
1. Nations Cash Reserves
2. Nations Treasury Reserves
3. Nations Government Reserves
4. Nations Municipal Reserves
5. Nations Money Market Reserves
Amended: February 4, 1998
TRANSFER AGENCY AND REGISTRAR AGREEMENT
AGREEMENT, dated as of June 1, 1994, between THE CAPITOL MUTUAL FUNDS
(the "Trust"), a Massachusetts business trust on behalf of the Class A, Class B,
Class C, and Class D shares (the "Shares") and having its principal place of
business at 111 Center Street, Little Rock, Arkansas 72201, and THE SHAREHOLDER
SERVICES GROUP, INC. (MA) (the "Transfer Agent"), a Massachusetts corporation
with principal offices at One Exchange Place, 53 State Street, Boston,
Massachusetts 02109.
W I T N E S S E T H
That for an in consideration of the mutual covenants and promises
hereinafter set forth, the Trust and the Transfer Agent agree as follows:
1. Definitions. Whenever used in this Agreement, the following words
and phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Declaration of Trust" shall mean the Declaration of Trust of
the Trust as the same may be amended from time to time.
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Trust, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Trust as indicated in a certificate furnished to the Transfer Agent pursuant to
Section 4(c) hereof as may be received by the Transfer Agent from time to time.
(c) "Board of Trustees" shall mean the Board of Trustees of the
Trust, as the case may be.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Trust may from time to time deposit, or
cause to be deposited or held under the name or account of such a custodian
pursuant to a Custodian Agreement.
(f) "Trust" shall mean the entity executing this Agreement.
(g) "1940 Act" shall mean the Investment Company Act of 1940.
(h) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by the Transfer Agent from a person reasonably
believed by the Transfer Agent to be an Authorized Person;
<PAGE>
(i) "Prospectus" shall mean the most recently dated Trust Prospectus
and Statement of Additional Information, including any supplements thereto if
any, which has become effective under the Securities Act of 1933 and the 1940
Act.
(j) "Shareholder" shall mean a holder of Shares of capital stock,
beneficial interest or any other class or series.
(k) "Written Instructions" shall mean a written communication signed
by a person reasonably believed by the Transfer Agent to be an Authorized Person
and actually received by the Transfer Agent. Written Instructions shall include
manually executed originals and authorized electronic transmissions, including
telefacsimile of a manually executed original or other process.
2. Appointment of the Transfer Agent. The Trust hereby appoints and
constitutes the Transfer Agent as transfer agent, registrar and dividend
disbursing agent for Shares of the Trust and as shareholder servicing agent for
the Trust. The Transfer Agent accepts such appointments and agrees to perform
the duties hereinafter set forth.
3. Compensation.
(a) The Trust will compensate or cause the Transfer Agent to be
compensated for the performance of its obligations hereunder in accordance with
the fees set forth in the written schedule of fees annexed hereto as Schedule A
and incorporated herein. The Transfer Agent will transmit an invoice to the
Trust as soon as practicable after the end of each calendar month which will be
detailed in accordance with Schedule A, and the Trust will pay to the Transfer
Agent the amount of such invoice within fifteen (15) days after the Trust's
receipt of the invoice.
In addition, the Trust agrees to pay, and will be billed separately
for, reasonable out-of-pocket expenses incurred by the Transfer Agent in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule B and incorporated herein.
Schedule B may be modified by the Transfer Agent upon not less than 30 days'
prior written notice to the Trust. Unspecified out-of-pocket expenses shall be
limited to those out-of-pocket expenses reasonably incurred by the Transfer
Agent in the performance of its obligations hereunder. Reimbursement by the
Trust for expenses incurred by the Transfer Agent in any month shall be made as
soon as practicable but no later than 30 days after the receipt of an itemized
bill from the Transfer Agent.
(b) Any compensation agreed to hereunder may be adjusted from time
to time by attaching to Schedule A, a revised fee schedule executed and dated by
the parties hereto.
4. Documents. In connection with the appointment of the Transfer Agent
the Trust shall deliver or caused to be delivered to the Transfer Agent the
following documents on or before the date this Agreement goes into effect, but
in any case within a
<PAGE>
reasonable period of time for the Transfer Agent to prepare to perform its
duties hereunder:
(a) If applicable, specimens of the certificates for Shares of the
Trust;
(b) All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the Trust;
(c) A signature card bearing the signatures of any officer of the
Trust or other Authorized Person who will sign Written Instructions or is
authorized to give Oral Instructions.
(d) A certified copy of the Declaration of Trust, as amended;
(e) A certified copy of the By-laws of the Trust, as amended;
(f) A copy of the resolution of the Board of Trustees authorizing
the execution and delivery of this Agreement;
(g) A certified list of Shareholders of the Trust with the name,
address and taxpayer identification number of each Shareholder, and the number
of Shares of the Trust held by each, certificate numbers and denominations (if
any certificates have been issued), lists of any accounts against which stop
transfer orders have been placed, together with the reasons therefore, and the
number of Shares redeemed by the Trust; and
(h) An opinion of counsel for the Trust with respect to the validity
of the Shares and the status of such Shares under the Securities Act of 1933, as
amended.
5. Further Documentation. The Trust will also furnish the Transfer
Agent with copies of the following documents promptly after the same shall
become available:
(a) each resolution of the Board of Trustees authorizing the
issuance of Shares;
(b) any registration statements filed on behalf of the Trust and all
pre-effective and post-effective amendments thereto filed with the Commission;
(c) a certified copy of each amendment to the Declaration of Trust
or the By-laws of the Trust;
(d) certified copies of each resolution of the Board of Trustees or
other authorization designating Authorized Persons; and
(e) such other certificates, documents or opinions as the Transfer
Agent may reasonably request in connection with the performance of its duties
hereunder.
<PAGE>
6. Representations of the Trust. The Trust represents to the Transfer
Agent that all outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the terms of
the Trust's Declaration of Trust and its Prospectus, such Shares shall be
validly issued, fully paid and non-assessable.
7. Distributions Payable in Shares. In the event that the Board of
Trustees of the Trust shall declare a distribution payable in Shares, the Fund
shall deliver or cause to be delivered to the Transfer Agent written notice of
such declaration signed on behalf of the Trust by an officer thereof, upon which
the Transfer Agent shall be entitled to rely for all purposes, certifying (i)
the identity of the Shares involved, (ii) the number of Shares involved, and
(iii) that all appropriate action in connection with the distribution has been
taken.
8. Duties of the Transfer Agent. The Transfer Agent shall be
responsible for administering and/or performing those functions typically
performed by a transfer agent; for acting as service agent in connection with
dividend and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance, transfer and
redemption or repurchase (including coordination with the Custodian) of Shares
in accordance with the terms of the Prospectus and applicable law. The operating
standards and procedures to be followed shall be determined from time to time by
agreement between the Trust and the Transfer Agent and shall initially be as
described in Schedule C attached hereto. In addition, the Trust shall deliver to
the Transfer Agent all notices issued by the Trust with respect to the Shares in
accordance with and pursuant to the Declaration of Trust or By-laws of the Trust
or as required by law and shall perform such other specific duties as are set
forth in the Declaration of Trust including the giving of notice of any special
or annual meetings of shareholders and any other notices required thereby.
9. Record Keeping and Other Information. The Transfer Agent shall
create and maintain all records required of it pursuant to its duties hereunder
and as set forth in Schedule C in accordance with all applicable laws, rules and
regulations, including records required by Section 31(a) of the 1940 Act. All
records shall be available during regular business hours for inspection and use
by the Trust. Where applicable, such records shall be maintained by the Transfer
Agent for the periods and in the places required by Rule 31a-2 under the 1940
Act.
Upon reasonable notice by the Trust, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Trust, or any person retained by the Trust as
may be necessary for the Trust to evaluate the quality of the services performed
by the Transfer Agent pursuant hereto.
10. Other Duties. In addition to the duties set forth in Schedule C,
the Transfer Agent shall perform such other duties and functions, and shall be
paid such amounts therefor, as may from time to time be agreed upon in writing
between the Trust and the Transfer Agent. The compensation for such other duties
and functions shall be
<PAGE>
reflected in a written amendment to Schedule A or B and the duties and functions
shall be reflected in an amendment to Schedule C, both dated and signed by
authorized persons of the parties hereto.
11. Reliance by Transfer Agent; Instructions.
(a) The Transfer Agent will have no liability when acting upon
Written or Oral Instructions believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Trust pursuant to Section 4(c). The Transfer Agent will also
have no liability when processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the officers of
the Trust and the proper countersignature of the Transfer Agent.
(b) At any time, the Transfer Agent may apply to any Authorized
Person of the Trust for Written Instructions and may seek advice from legal
counsel for the Trust, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any
action taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Trust or for the Transfer Agent. Written Instructions requested by the Transfer
Agent will be provided by the Trust within a reasonable period of time. In
addition, the Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Trust only if said representative is an
Authorized Person. The Trust agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Trust's
failure to so confirm shall not impair in any respect the Transfer Agent's right
to rely on Oral Instructions. The Transfer Agent shall have no duty or
obligation to inquire into, nor shall the Transfer Agent be responsible for, the
legality of any act done by it upon the request or direction of a person
reasonably believed by the Transfer Agent to be an Authorized Person.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to inquire
into, and shall not be liable for: (i) the legality of the issuance or sale of
any Shares or the sufficiency of the amount to be received therefor; (ii) the
legality of the redemption of any Shares, or the propriety of the amount to be
paid therefor; (iii) the legality of the declaration of any dividend by the
Board of Trustees, or the legality of the issuance of any Shares in payment of
any dividend; or (iv) the legality of any recapitalization or readjustment of
the Shares.
12. Acts of God, etc. The Transfer Agent will not be liable or
responsible for delays or errors by acts of God or by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties, mechanical breakdown, insurrection, war, riots,
or failure or unavailability of transportation, communication or power supply,
fire, flood or other catastrophe.
<PAGE>
13. Duty of Care and Indemnification.
(a) The Trust will indemnify the Transfer Agent against and hold it
harmless from any and all losses, claims, damages, liabilities or expenses of
any sort or kind (including reasonable counsel fees and expenses) ("Claims")
resulting from any claim, demand, action or suit or other proceeding unless such
Claims have been determined to have resulted from a negligent act or omission to
act or bad faith of the Transfer Agent in the performance of its duties
hereunder. In addition, the Trust will indemnify the Transfer Agent against and
hold it harmless from any Claims that do not arise from a negligent act or
omission to act or bad faith of the Transfer Agent in the performance of its
duties hereunder and that results from: (i) any action taken in accordance with
Written or Oral Instructions, or any other instructions, or share certificates
reasonably believed by the Transfer Agent to be genuine and to be signed,
countersigned or executed, or orally communicated by an Authorized Person; (ii)
any action taken in accordance with written or oral advice reasonably believed
by the Transfer Agent to have been given by counsel for the Trust or its own
counsel; or (iii) any action taken as a result of any error or omission in any
record (including but not limited to magnetic tapes, computer printouts, hard
copies and microfilm copies) delivered, or caused to be delivered by the Trust
to the Transfer Agent in connection with this Agreement.
In any case in which the Trust may be asked to indemnify or hold the
Transfer Agent harmless, the Trust shall be advised of all pertinent facts
concerning the situation in question. The Transfer Agent will notify the Trust
promptly after identifying any situation which it believes presents or appears
likely to present a claim for indemnification against the Trust although the
failure to do so shall not prevent recovery by the Transfer Agent. The Trust
shall have the option to defend the Transfer Agent against any Claim which may
be the subject of this indemnification, and, in the event that the Trust so
elects, such defense shall be conducted by counsel chosen by the Trust and
satisfactory to the Transfer Agent, and thereupon the Trust shall take over
complete defense of the Claim and the Transfer Agent shall sustain no further
legal or other expenses in respect of such Claim. The Transfer Agent will not
confess any Claim or make any compromise in any case in which the Trust will be
asked to provide indemnification, except with the Trust's prior written consent.
The obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
14. Consequential Damages. In no event and under no circumstances shall
either party under this Agreement be liable to the other party for consequential
or indirect loss of profits, reputation or business or any other special damages
under any provision of this Agreement or for any act or failure to act
hereunder.
15. Term and Termination.
(a) This Agreement shall be effective on the date on which the Fund
first commences investment operations and thereafter shall automatically
continue for successive annual periods ending on the anniversary of the date
first written above, provided that it may be terminated by either party upon 180
days prior written notice.
<PAGE>
(b) In the event a termination notice is given by the Trust, the
Trust shall designate to the Transfer Agent a successor transfer agent or
transfer agents. Upon such termination and at the expense of the Trust, the
Transfer Agent will deliver to such successor a certified list of shareholders
of the Trust (with names and addresses), and all other relevant books, records,
correspondence and other Trust records or data in the possession of the Transfer
Agent, and the Transfer Agent will cooperate with the Trust and any successor
transfer agent or agents in the substitution process.
16. Confidentiality. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of the Commission
or other government agency. The parties further agree that a breach of this
provision would irreparably damage the other party and accordingly agree that
each of them is entitled, without bond or other security, to an injunction or
injunctions to prevent breaches of this provision.
17. Amendment. This Agreement may only be amended or modified by a
written instrument executed by both parties.
18. Subcontracting. The Trust agrees that the Transfer Agent may, in
its discretion, subcontract for certain of the services described under this
Agreement or the Schedules hereto; provided that the appointment of any such
Transfer Agent shall not relieve the Transfer Agent of its responsibilities
hereunder. The Transfer Agent may, in its discretion, request the approval of
any subcontractors by the Trust.
19. Miscellaneous.
(a) Notices. Any notice or other instrument authorized or required
by this Agreement to be given in writing to the Trust or the Transfer Agent,
shall be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Trust:
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
attn: Rick Blank
Secretary
with a copy to Fund Counsel
<PAGE>
To the Transfer Agent:
The Shareholder Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Robert F. Radin
President
with a copy to TSSG Counsel
(b) Successors. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and assigns, provided,
however, that this Agreement shall not be assigned to any person other than a
person controlling, controlled by or under common control with the assignor
without the written consent of the other party, which consent shall not be
unreasonably withheld.
(c) Governing Law. This Agreement shall be governed exclusively by
the laws of the Commonwealth of Massachusetts without reference to the choice of
law provisions thereof. Each party hereto hereby (i) consents to the personal
jurisdiction of such court over the parties hereto, hereby waiving any defense
of lack of personal jurisdiction; and (ii) appoints the person to whom notices
hereunder are to be sent as agent for service of process.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) Captions. The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(f) Use of Transfer Agent's Name. Other than internal use by the
Trust, the Trust shall not use the name of the Transfer Agent in any Prospectus,
Statement of Additional Information, shareholders' report, sales literature or
other material relating to the Trust in a manner not approved prior thereto in
writing; provided, that the Transfer Agent need only receive notice of all
reasonable uses of its name which merely refer in accurate terms to its
appointment hereunder or which are required by any government agency or
applicable law or rule. Notwithstanding the foregoing, any reference to the
Transfer Agent shall include a statement to the effect that it is a wholly owned
subsidiary of First Data Corporation.
(g) Use of Fund's Name. The Transfer Agent shall not use the name of
the Trust or material relating to the Trust on any documents or forms for other
than internal use in a manner not approved prior thereto in writing; provided,
that the Trust need only receive notice of all reasonable uses of its name which
merely refer in accurate terms to the appointment of the Transfer Agent or which
are required by any government agency or applicable law or rule.
<PAGE>
(h) Independent Contractors. The parties agree that they are
independent contractors and not partners or co-venturers.
(i) Entire Agreement; Severability. This Agreement and the Schedules
attached hereto constitute the entire agreement of the parties hereto relating
to the matters covered hereby and supersede any previous agreements. If any
provision is held to be illegal, unenforceable or invalid for any reason, the
remaining provisions shall not be affected or impaired thereby.
(j) Liability of Trust and Trustees. The names "The Capitol Mutual
Funds" and "Trustees of The Capitol Mutual Funds" refer to the trust created and
the Trustees, as trustees but not individually or personally, acting from time
to time under a Declaration of Trust dated January 22, 1990, which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of the Commonwealth of Massachusetts and at the principal office of the Trust.
The obligations of "The Capitol Mutual Funds" entered into in the name of or on
behalf thereof by any of the Trustees, officers, representatives, or agents are
not made individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders, representatives, or agents of the Trust personally,
but bind only Trust property and all persons dealing with any class of Shares of
the Trust must look solely to the Trust property belonging to such class for
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized
officers, as of the day and year first above written.
THE CAPITOL MUTUAL FUNDS:
By: _________________________
James Edward Banko
Assistant Secretary
THE SHAREHOLDER SERVICES GROUP, INC.:
By: __________________________
<PAGE>
Schedule A
The Trust shall pay the Transfer Agent a minimum of $36,000 per annum
per portfolio. Once the individual portfolio has reached an asset level of $144
million, the fee will convert to the basis point schedule below. The Transfer
Agent agrees to waive the Trust's minimum fees through December 1994. However,
the portfolios with assets surpassing the minimum asset requirements will be
charged the asset based fees immediately.
TSSG proposes a basis point fee arrangement as follows:
Assets up to $3 billion: 2.5 basis points
$3 billion to $5 billion: 2.0 basis points
$6 billion to $8 billion: 1.5 basis points
$9 billion to $10 billion: 1.0 basis points
$10 billion and over: 0.08 basis points
<PAGE>
Schedule B
OUT-OF-POCKET EXPENSES
The Trust shall reimburse the Transfer Agent monthly for reasonable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes,
checks and stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first
class) direct pass through to the Trust
- Due diligence mailings
- Telephone and telecommunication costs, including
all lease, maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and
insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other
equipment and any expenses incurred in connection
with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Trust
- Temporary staff, as approved by the Trust
- Travel and entertainment, as approved by the Trust
- Record retention, retrieval and destruction costs,
including, but not limited to exit fees charged by
third party record keeping vendors
- Third party audit reviews
- All conversion costs in excess of $250,000
- All Systems enhancements after the conversion at
the rate of $95.00 per hour
- Insurance
- Such other miscellaneous expenses reasonably
incurred by the Transfer Agent in performing its
duties and responsibilities under this Agreement.
The Trust agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with the Transfer Agent. In addition, the
Trust will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Trust and the Transfer
Agent mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
<PAGE>
Schedule C
DUTIES OF THE TRANSFER AGENT
1.Shareholder Information. The Transfer Agent or its agent shall
maintain a record of the number of Shares held by each holder of record which
shall include name, address, taxpayer identification and which shall indicate
whether such Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent or its agent will
investigate all inquiries from shareholders of the Trust relating to Shareholder
accounts and will respond to all communications from Shareholders and others
relating to its duties hereunder and such other correspondence as may from time
to time be mutually agreed upon between the Transfer Agent and the Trust.
3. Share Certificates.
(a) At the expense of the Trust, it shall supply the Transfer Agent
or its agent with an adequate supply of blank share certificates to meet the
Transfer Agent or its agent's requirements therefor. Such Share certificates
shall be properly signed by facsimile. The Trust agrees that, notwithstanding
the death, resignation, or removal of any officer of the Trust whose signature
appears on such certificates, the Transfer Agent or its agent may continue to
countersign certificates which bear such signatures until otherwise directed by
Written Instructions.
(b) The Transfer Agent or its agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by the Transfer Agent or its agent of properly executed affidavits
and lost certificate bonds, in form satisfactory to the Transfer Agent or its
agent, with the Trust and the Transfer Agent or its agent as obligees under the
bond.
(c) The Transfer Agent or its agent shall also maintain a record of
each certificate issued, the number of Shares represented thereby and the holder
of record. With respect to Shares held in open accounts or uncertificated form,
i.e., no certificate being issued with respect thereto, the Transfer Agent or
its agent shall maintain comparable records of the record holders thereof,
including their names, addresses and taxpayer identification. The Transfer Agent
or its agent shall further maintain a stop transfer record on lost and/or
replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent or its agent will address and mail to Shareholders of the Trust,
all reports to Shareholders, dividend and distribution notices and proxy
material for the Trust's meetings of Shareholders. In connection with meetings
of Shareholders, the Transfer Agent or its Agent will prepare Shareholder lists,
mail and certify as to the mailing of proxy materials, process and tabulate
returned proxy cards, report on proxies voted prior to meetings, act as
inspector of election at meetings and certify Shares voted at meetings.
<PAGE>
5. Sales of Shares
(a) Suspension of Sale of Shares. The Transfer Agent or its agent
shall not be required to issue any Shares of the Trust where it has received a
Written Instruction from the Trust or official notice from any appropriate
authority that the sale of the Shares of the Trust has been suspended or
discontinued. The existence of such Written Instructions or such official notice
shall be conclusive evidence of the right of the Transfer Agent or its agent to
rely on such Written Instructions or official notice.
(b) Returned Checks. In the event that any check or other order for
the payment of money is returned unpaid for any reason, the Transfer Agent or
its agent will: (i) give prompt notice of such return to the Trust or its
designee; (ii) place a stop transfer order against all Shares issued as a result
of such check or order; and (iii) take such actions as the Transfer Agent may
from time to time deem appropriate.
6. Transfer and Repurchase
(a) Requirements for Transfer or Repurchase of Shares. The Transfer
Agent or its agent shall process all requests to transfer or redeem Shares in
accordance with the transfer or repurchase procedures set forth in the Trust's
Prospectus.
The Transfer Agent or its agent will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and Share certificates, if any, properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent or its agent
reasonably may deem necessary.
The Transfer Agent or its agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. The Transfer Agent or its agent also reserves
the right to refuse to transfer or repurchase Shares until it is satisfied that
the requested transfer or repurchase is legally authorized, and it shall incur
no liability for the refusal, in good faith, to make transfers or repurchases
which the Transfer Agent or its agent, in its good judgment, deems improper or
unauthorized, or until it is reasonably satisfied that there is no basis to any
claims adverse to such transfer or repurchase.
(b) Notice to Custodian and Trust. When Shares are redeemed, the
Transfer Agent or its agent shall, upon receipt of the instructions and
documents in proper form, deliver to the Custodian and the Trust or its designee
a notification setting forth the number of Shares to be repurchased. Such
repurchased Shares shall be reflected on appropriate accounts maintained by the
Transfer Agent or its agent reflecting outstanding Shares of the Trust and
Shares attributed to individual accounts.
(c) Payment of Repurchase Proceeds. The Transfer Agent or its agent
shall, upon receipt of the moneys paid to it by the Custodian for the repurchase
of Shares, pay such moneys as are received from the Custodian, all in accordance
with the procedures described in the written instruction received by the
Transfer Agent or its agent from the Trust.
<PAGE>
The Transfer Agent or its agent shall not process or effect any
repurchase with respect to Shares of the Trust after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of the
net asset value of the Trust.
7. Dividends
(a) Notice to Agent and Custodian. Upon the declaration of each
dividend and each capital gains distribution by the Board of Directors of the
Trust with respect to Shares of the Trust, the Trust shall furnish or cause to
be furnished to the Transfer Agent or its agent a copy of a resolution of the
Trust's Board of Directors certified by the Secretary of the Trust setting forth
the date of the declaration of such dividend or distribution, the ex-dividend
date, the date of payment thereof, the record date as of which shareholders
entitled to payment shall be determined, the amount payable per Share to the
shareholders of record as of that date, the total amount payable to the Transfer
Agent or its agent on the payment date and whether such dividend or distribution
is to be paid in Shares of such class at net asset value.
On or before the payment date specified in such resolution of the
Board of Directors, the Custodian of the Trust will pay to the Transfer Agent
sufficient cash to make payment to the shareholders of record as of such payment
date.
(b) Insufficient Funds for Payments. If the Transfer Agent or its
agent does not receive sufficient cash from the Custodian to make accurately
determined total dividend and/or distribution payments to all shareholders of
the Trust as of the record date, the Transfer Agent or its agent will, upon
notifying the Trust, withhold payment to all Shareholders of record as of the
record date until sufficient cash is provided to the Transfer Agent or its
agent, unless such insufficient cash is a result of the Transfer Agent's
negligence.
<PAGE>
Exhibit 1
to
Schedule C
Summary of Services
The services to be performed by the Transfer Agent or its agent shall
be as follows:
A. DAILY RECORDS
Maintain daily the following information with respect to each
Shareholder account as received:
o Name and Address (Zip Code)
o Class of Shares
o Taxpayer Identification Number
o Balance of Shares held by Agent
o Beneficial owner code: i.e., male, female, joint tenant,
etc.
o Dividend code (reinvestment)
o Number of Shares held in certificate form
B. OTHER DAILY ACTIVITY
o Answer written inquiries relating to Shareholder accounts
(matters relating to portfolio management, distribution of
Shares and other management policy questions will be
referred to the Trust).
o Process additional payments into established Shareholder
accounts in accordance with Written Instruction from the
Agent.
o Upon receipt of proper instructions and all required
documentation, process requests for repurchase of Shares.
o Identify redemption requests made with respect to accounts
in which Shares have been purchased within an agreed-upon
period of time for determining whether good funds have
been collected with respect to such purchase and process
as agreed by the agent in accordance with written
instructions set forth by the Trust.
o Examine and process all transfers of Shares, ensuring that
all transfer requirements and legal documents have been
supplied.
o Issue and mail replacement checks.
o Open new accounts and maintain records of exchanges
between accounts.
<PAGE>
C. DIVIDEND ACTIVITY
o Calculate and process Investor Share dividends and
distributions as instructed by the Trust.
o Compute, prepare and mail all necessary reports to
Shareholders or various authorities as requested by the
Trust. Report to the Trust reinvestment plan share
purchases and determination of the reinvestment price.
D. MEETINGS OF SHAREHOLDERS
o Cause to be mailed proxy and related material for all
meetings of Shareholders. Tabulate returned proxies
(proxies must be adaptable to mechanical equipment of the
Agent or its agents) and supply daily reports when
sufficient proxies have been received.
o Prepare and submit to the Trust an Affidavit of Mailing.
o At the time of the meeting, furnish a certified list of
Shareholders, hard copy, microfilm or microfiche and, if
requested by the Trust, Inspection of Election.
E. PERIODIC ACTIVITIES
o Cause to be mailed reports, Prospectuses, and any other
enclosures requested by the Trust (material must be
adaptable to mechanical equipment of Agent or its agents).
o Receive all notices issued by the Trust with respect to
the Shares in accordance with and pursuant to the
Declaration of Trust and perform such other specific
duties as are set forth in the Declaration of Trust
including a giving of notice of a special meeting and
notice of redemption in the circumstances and otherwise in
accordance with the all relevant provisions of the
Declaration of Trust.
F. DISASTER RECOVERY
o Maintain a disaster recovery plan reasonably designed to
keep the records and adequate systems available to the
Company.
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
August 27, 1998
The Capitol Mutual Funds
111 Center Street
Little Rock, Arkansas 72201
Re: Units of Beneficial Interest in the
Funds of The Capitol Mutual Funds
(d/b/a Nations Institutional Reserves)
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 22 and Amendment No. 23 to the
Registration Statement on Form N-1A (SEC File Nos. 33-33144; 811-6030) (the
"Registration Statement") of The Capitol Mutual Funds (the "Trust") relating
to the registration of an indefinite number of units of Beneficial Interest
in Funds of the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as Exhibit
10 to the Registration Statement.
We have examined such records, documents, instruments, certificates of
public officials and of the Trust, made such inquiries of the Trust, and
examined such questions of law as we have deemed necessary for the purpose of
rendering the opinion set forth herein. We have assumed the genuineness of
all signatures and the authenticity of all items submitted to us as originals
and the conformity with originals of all items submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance and sale of the Shares by the Trust have been duly and
validly authorized by all appropriate action, and assuming delivery by sale
or in accord with the dividend reinvestment plan of each of the Trust's
portfolios in accordance with the
<PAGE>
The Capitol Mutual Funds
August 27, 1998
Page 2
description set forth in the Registration Statement, the Shares will be
validly issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our Firm under the heading "Counsel" in the Statement of
Additional Information, and the description of advice rendered by our Firm
under the heading "How The Funds Are Managed" in the Prospectuses, which are
included as part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
Prepared by: ____________________________
Reviewed by: ___________________________
Signed by: _____________________________
EX-99.B11(a)
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 22 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated June 23, 1998, relating to the financial
statements and financial highlights appearing in the April 30, 1998 Annual
Report to Shareholders of Nations Cash Reserves, Nations Treasury Reserves,
Nations Government Reserves, and Nations Municipal Reserves, portfolios of
Nations Institutional Reserves, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "How The Funds Are Managed - Other Service
Providers" in the Prospectuses and under the heading "Experts and Financial
Information" in the Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
- ----------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 27, 1998
EXHIBIT 99.B11(b)
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Consent
The Board of Trustees of Nations Institutional Reserves:
We consent to the use of our reports dated July 1, 1998 and January 21, 1998,
which are incorporated by reference herein and to the reference to our firm
under the headings "Financial Highlights" in the Capital Class Shares Prospectus
and "Experts and Financial Information" in the Statement of Additional
Information.
/s/KPMG Peat Marwick LLP
- -----------------------
KPMG Peat Marwick LLP
Columbus, Ohio
August 27, 1998
DISTRIBUTION PLAN
NATIONS INSTITUTIONAL RESERVES
LIQUIDITY SHARES
WHEREAS, Nations Institutional Reserves (the "Trust") is engaged in
business as a diversified, open-end investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Trust and the owners of units of beneficial interest ("Unitholders") in
Liquidity Class Shares of Cash Reserves, Treasury Reserves, Government Reserves
and Tax Free Reserves of the Trust and such other funds as may be
added to the Trust (the "Liquidity Class Funds");
NOW THEREFORE, the Trustees of the Trust hereby adopt this distribution
plan pursuant to Rule 12b-1 under the 1940 Act.
Section 1. The Trust has adopted this distribution plan (the "Plan") to
enable the Trust to directly or indirectly bear expenses relating to the
distribution of Liquidity Class securities of which the Trust is the issuer.
Section 2. The Trust may incur expenses for the items stipulated in
Section 3 of this Plan, provided that in no event shall the Trust incur
reimbursable expenses for Liquidity Class Shares that exceed an annual rate of
.30% of the Trust's average daily net assets relating to the Class during any
fiscal year of the Trust. All expenditures pursuant to this Plan shall be made
only pursuant to authorization by the President, any Vice President or the
Treasurer of the Trust. If there should be more than one series of Trust units,
expenses incurred pursuant to this Plan shall be allocated among the several
series of the Trust on the basis of their relative net asset values, unless
otherwise determined by a majority of the Qualified Trustees. In addition, The
Trust will pay the Distributor a fee of up to .30% of the Liquidity Class funds'
(.35% with respect to Liquidity Class of the Treasury Reserves) average daily
net assets which the distributor can use to compensate certain financial
institutions which provide administrative and/or distribution services to
Liquidity Class unitholders relating to the Trust. The actual fee paid to the
administrators will be negotiated based on the extent and quality of services
provided.
Section 3. Reimbursable expenses permitted pursuant to this Plan shall
include the following expenses incurred with respect to the Liquidity Class
securities:
(a) the incremental printing costs incurred in producing for and
distributing to persons other than current Unitholders of the
Trust, the reports, prospectuses, notices and similar materials
that are prepared by the Trust for current Unitholders;
1
<PAGE>
(b) the cost of complying with state and federal laws pertaining to
the distribution of the Trust's units;
(c) advertising;
(d) the costs of preparing, printing and distributing any literature
used in connection with the offering of the Trust's units and not
covered by Section 3(a) of this Plan;
(e) expenses incurred in connection with the promotion and sale of the
Trust's units including, without limitation, travel and
communication expenses and expenses for the compensation of and
benefits for sales personnel; and
(f) any other expenses reasonably incurred in connection with the
distribution and marketing of the Liquidity Class securities
subject to approval of a majority of the Qualified Trustees;
Section 4. This Plan shall not take effect until it has been approved
(a) by a vote of at least a majority of the outstanding voting securities in
Liquidity Class of the Trust; and (b) together with any related agreements, by
votes of the majority of both (i) the Trustees of the Trust and (ii) the
Qualified Trustees, cast in person at a Board of Trustees meeting called for the
purpose of voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 4 herein for the approval of this Plan.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made.
Section 7. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the Trust's
outstanding voting securities.
Section 8. All agreements with any person relating to implementation of
this Plan shall be in writing, and any agreement related to this Plan shall
provide (a) that such agreement may be terminated at any time, without payment
of any penalty, by the vote of a majority of the Qualified Trustees or by the
vote of Unitholders holding a majority of the Trust's outstanding voting
securities, on not more than 60 days written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
Section 9. This plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 2 hereof without
the approval of Unitholders
2
<PAGE>
holding a majority of the outstanding voting securities in the Liquidity Class
of the Trust, and all material amendments to this Plan shall be approved in the
manner provided in Part (b) of Section 4 herein for the approval of this Plan.
Section 10. As used in this Plan, (a) the term "Qualified Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, and (b) the terms "assignment" and
"interested person" shall have the respective meanings specified in the 1940 Act
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Section 11. Nothing in this Plan shall operate or be construed to limit
the extent to which the Trust's Sponsor, Manager, Distributor, or Investment
Adviser or any other person, other than the Trust, may incur costs out of their
own monies and bear expenses associated with the distribution of securities of
which the Trust is the issuer.
Section 12. While this Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Trust within the meaning
of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
Section 13. This Plan shall not obligate the Trust or any other party
to enter into an agreement with any particular person.
3
<PAGE>
EXHIBIT A
NATIONS INSTITUTIONAL RESERVES
Nations Cash Reserves
Nations Government Reserves
Nations Treasury Reserves
Nations Municipal Reserves
Nations Money Market Reserves
Amended: February 4, 1998
NATIONS INSTITUTIONAL RESERVES
SHAREHOLDER SERVICING PLAN ("PLAN")
FOR ADVISER CLASS SHARES
Section 1. Each of the proper officers of The Capitol Mutual Funds, doing
business as Nations Institutional Reserves, (the "Trust") is authorized to
execute and deliver, in the name and on behalf of the Trust, written agreements
based substantially on the form attached hereto as Appendix A or any other form
duly approved by the Trust's Board of Trustees ("Agreements") with
broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Adviser Class Shares ("Servicing Agents") in any of the
Trust's Funds set forth on Exhibit I attached hereto, provided that any material
modifications of services listed in the Agreement shall be presented for
approval or ratification by the Trustees at the next regularly scheduled Board
Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder
support services as set forth therein to their clients who beneficially own
Adviser Class Shares of the Funds in consideration of a fee, computed monthly in
the manner set forth in the applicable Fund's then current prospectus, at an
annual rate of up to 0.25% of the average daily net asset value of the Adviser
Class Shares beneficially owned by or attributable to such clients. Affiliates
of the Trust's distributor, administrator, co-administrator and adviser are
eligible to become Servicing Agents and to receive fees under this Plan. All
expenses incurred by a Fund in connection with the Agreements and the
implementation of this Plan shall be borne entirely by the holders of the
Adviser Class Shares of the particular Fund involved. If more than one Fund is
involved and these expenses are not directly attributable to Adviser Class
Shares of a particular Fund, then the expenses may be allocated between or among
the Adviser Class Shares of the Funds in a fair and equitable manner.
Section 2. The Trust's administrator and/or co-administrator shall monitor
the arrangements pertaining to the Trust's Agreements with Servicing Agents. The
Trust's administrator and co-administrator shall not, however, be obligated by
this Plan to recommend, and the Trust shall not be obligated to execute, any
Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, the Trust's administrator
and/or co-administrator shall provide to the Trust's Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to this Plan and the purposes for which such expenditures were
made.
Section 4. To the extent any portion of the fees payable under the
Agreements is deemed to be for services primarily intended to result in the sale
of Fund shares, such fees are deemed approved and may be paid pursuant to the
Plan and in accordance with Rule 12b-1 under the Act, provided that the
Agreements, to the extent they are deemed to relate to services primarily
intended to result in the sale of Fund shares, are approved and otherwise
treated in all respects as agreements related to the Plan.
<PAGE>
Section 5. This Plan will become effective immediately, as to any Fund's
Adviser Class Shares, upon its approval by (a) a majority of the outstanding
Adviser Class Shares of such Fund, and (b) a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements entered
into in connection with this Plan, pursuant to a vote cast in person at a
meeting called for the purpose of voting on the approval of this Plan.
Section 6. This Plan shall continue in effect for so long as its
continuance is specifically approved at least annually by the Trust's Board of
Trustees in the manner described in Section 5.
Section 7. This Plan may be amended at any time by the Board of Trustees
provided that (a) any amendment to increase materially the costs which a Fund's
Adviser Class Shares may bear for distribution pursuant to this Plan shall be
effective only upon approval by a vote of a majority of the outstanding Adviser
Class Shares of such Fund, and (b) any material amendments of the terms of this
Plan shall become effective only upon approval as provided in Section 5 hereof.
Section 8. This Plan is terminable, as to a Fund's Adviser Class Shares,
without penalty at any time by (a) a vote of a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreements entered into in connection with this Plan, or (b) a vote of a
majority of the outstanding Adviser Class Shares of such Fund.
Section 9. While this Plan is in effect, the selection and nomination of
those Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust shall be committed to the discretion of such non-interested Trustees.
Section 10. The names "The Capitol Mutual Funds" and "Trustees of Nations
Fund Trust" refer respectively to the trust created and the Trustees, as
Trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated January 22, 1990, which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of The Commonwealth of Massachusetts and at the principal office of the Trust.
The obligations of "The Capitol Mutual Funds" entered into in the name or on
behalf thereof by any of the Trustees, officers, representatives or agents are
made not individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders, officers, representatives or agents of the Trust
personally, but bind only the Trust Property, and all persons dealing with a
Fund's Adviser Class Shares of the Trust must look solely to the Trust property
belonging to such Fund's Adviser Class Shares for the enforcement of any claims
against the Trust.
Section 11. The Trust will preserve copies of this Plan, and any
Agreements and written reports regarding this Plan presented to the Board of
Trustees for a period of not less than six years.
2
<PAGE>
EXHIBIT I
Nations Cash Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Nations Money Market Reserves
Amended: February 4, 1998
NATIONS INSTITUTIONAL RESERVES
FORM OF
SHAREHOLDER SERVICING AGREEMENT
ADVISER CLASS SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement ("Agreement")
with you concerning the provision of administrative support services to your
clients ("Customers") who may from time to time beneficially own Adviser Class
Shares in one or more of the portfolios (the "Funds") of Nations Institutional
Reserves (the "Trust").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own Adviser
Class Shares:1 (i) aggregating and processing purchase and redemption requests
for Adviser Class Shares from Customers and transmitting promptly net purchase
and redemption orders to our distributor or transfer agent; (ii) providing
Customers with a service that invests the assets of their accounts in Adviser
Class Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from the Trust on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Adviser Class Shares; (v) arranging for bank wires; (vi) responding
to Customers' inquiries concerning their investment in Adviser Class Shares;
(vii) providing subaccounting with respect to Adviser Class Shares beneficially
owned by Customers or the information to us necessary for subaccounting; (viii)
if required by law, forwarding shareholder communications from us (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding this
Agreement; (x) general shareholder liaison services; and (xi) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules or regulations. All services
rendered hereunder by you shall be performed in a professional, competent and
timely manner.
Section 2. You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as agent or,
upon the order of, and for the account of, your Customers.
Section 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your
- --------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
1
<PAGE>
business, or any personnel employed by you) as may be reasonably necessary or
beneficial in order to provide the administrative support services contemplated
hereby.
Section 4. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Adviser Shares
except those contained in our then current prospectuses and statements of
additional information, as amended or supplemented from time to time, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by the Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect, except as provided herein. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold us harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Adviser Class Shares (or orders relating
to the same) by or on behalf of Customers. You and your employees will, upon
request, be available during normal business hours to consult with us or our
designees concerning the performance of your responsibilities under this
Agreement.
Section 6. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payments therefor, a
fee as described in the applicable then current prospectuses. The fee rate
payable to you may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of Adviser Class Shares of any
and all Funds, including the sale of Adviser Class Shares to you for the account
of any Customer or Customers. Compensation payable under this Agreement is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice governing receipt by NASD members of
service fees from registered investment companies (the "NASD Service Fee Rule").
Such compensation shall only be paid if permissible under the NASD Service Fee
Rule and shall not be payable for services that are deemed to be
distribution-related services.
Section 7. You agree to provide to us at least quarterly, a written report
of the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which such
expenditures were made. In addition, you will furnish us or our designees with
such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Customers of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors or legal counsel
designated by us), in connection with the preparation of reports to our Board of
Trustees concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by law.
Section 8. We may enter into other similar Agreements with any other person
or persons without your consent.
2
<PAGE>
Section 9. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive in connection with the investment of your Customers'
assets in Adviser Class Shares of the Funds, will be disclosed by you to your
Customers to the extent required by applicable laws or regulations, will be
authorized by your Customers and will not result in an excessive or unreasonable
fee to you and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any Adviser Class Shares held for your own
account in the same proportion as the vote of the Adviser Class Shares held for
your Customers' benefit.
Section 10. You agree to conform to compliance standards adopted by the
Trust or its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and continues
in effect until terminated. This Agreement is terminable with respect to any
series of Adviser Class Shares, without penalty, at any time by us (which
termination may be by a vote of a majority of the disinterested Trustees of the
Trust) or by you upon written notice to the other party hereto.
Section 12. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated herein
(with a confirming copy by mail), or to such other address as either party shall
so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with the internal
laws of The Commonwealth of Massachusetts without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
Section 14. The names "Nations Institutional Reserves" and "Trustees" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated January 20, 1990 which is hereby referred to and a copy of which is
on file at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"Nations Institutional Reserves" entered into in the name or on behalf thereof
by any of the Trustees, officers, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, officers, representatives or agents of the Trust
personally, but bind only the Trust Property (as defined in the Declaration of
Trust), and all persons dealing with any class of shares of the Trust must look
solely to the Trust Property belonging to such class for the enforcement of any
claims against the Trust.
3
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return
it to us, at the following address: 111 Center Street, Little Rock, Arkansas
72201; Fax No. (501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS INSTITUTIONAL RESERVES
Date: ____________________ By:_____________________________
Name:________________________
Title:_________________________
Accepted and Agreed to:
Servicing Agent
------------------------------
(Firm Name)
------------------------------
(Address)
------------------------------
(City) (State)
Fax # _________________________
Attention:_____________________
Date:_____________________________ By:____________________________
Name: _________________________
Title: ________________________
4
NATIONS INSTITUTIONAL RESERVES
SHAREHOLDER SERVICING PLAN ("PLAN")
FOR MARKET CLASS SHARES
Section 1. Each of the proper officers of The Capitol Mutual Funds, doing
business as Nations Institutional Reserves, (the "Trust") is authorized to
execute and deliver, in the name and on behalf of the Trust, written agreements
based substantially on the form attached hereto as Appendix A or any other form
duly approved by the Trust's Board of Trustees ("Agreements") with
broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Market Class Shares ("Servicing Agents") in any of the
Trust's Funds set forth on Exhibit I attached hereto, provided that any material
modifications of services listed in the Agreement shall be presented for
approval or ratification by the Trustees at the next regularly scheduled Board
Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder
support services as set forth therein to their clients who beneficially own
Market Class Shares of the Funds in consideration of a fee, computed monthly in
the manner set forth in the applicable Fund's then current prospectus, at an
annual rate of up to 0.25% of the average daily net asset value of the Market
Class Shares beneficially owned by or attributable to such clients. Affiliates
of the Trust's distributor, administrator, co-administrator and adviser are
eligible to become Servicing Agents and to receive fees under this Plan. All
expenses incurred by a Fund in connection with the Agreements and the
implementation of this Plan shall be borne entirely by the holders of the Market
Class Shares of the particular Fund involved. If more than one Fund is involved
and these expenses are not directly attributable to Market Class Shares of a
particular Fund, then the expenses may be allocated between or among the Market
Class Shares of the Funds in a fair and equitable manner.
Section 2. The Trust's administrator and/or co-administrator shall monitor
the arrangements pertaining to the Trust's Agreements with Servicing Agents. The
Trust's administrator and co-administrator shall not, however, be obligated by
this Plan to recommend, and the Trust shall not be obligated to execute, any
Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, the Trust's administrator
and/or co-administrator shall provide to the Trust's Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to this Plan and the purposes for which such expenditures were
made.
Section 4. This Plan will become effective immediately, as to any Fund's
Market Class Shares, upon its approval by (a) a majority of the outstanding
Market Class Shares of such Fund, and (b) a majority of the Board of Trustees,
including a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements entered
into in connection
<PAGE>
with this Plan, pursuant to a vote cast in person at a meeting called for the
purpose of voting on the approval of this Plan.
Section 5. This Plan shall continue in effect for so long as its continuance
is specifically approved at least annually by the Trust's Board of Trustees in
the manner described in Section 4.
Section 6. This Plan may be amended at any time by the Board of Trustees
provided that (a) any amendment to increase materially the costs which a Fund's
Market Class Shares may bear for distribution pursuant to this Plan shall be
effective only upon approval by a vote of a majority of the outstanding Market
Class Shares of such Fund, and (b) any material amendments of the terms of this
Plan shall become effective only upon approval as provided in Section 4 hereof.
Section 7. This Plan is terminable, as to a Fund's Market Class Shares,
without penalty at any time by (a) a vote of a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of this Plan or in any
agreements entered into in connection with this Plan, or (b) a vote of a
majority of the outstanding Market Class Shares of such Fund.
Section 8. While this Plan is in effect, the selection and nomination of
those Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust shall be committed to the discretion of such non-interested Trustees.
Section 9. The names "The Capitol Mutual Funds" and "Trustees of Nations
Fund Trust" refer respectively to the trust created and the Trustees, as
Trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated January 22, 1990, which is hereby
referred to and a copy of which is on file at the office of the State Secretary
of The Commonwealth of Massachusetts and at the principal office of the Trust.
The obligations of "The Capitol Mutual Funds" entered into in the name or on
behalf thereof by any of the Trustees, officers, representatives or agents are
made not individually, but in such capacities, and are not binding upon any of
the Trustees, Shareholders, officers, representatives or agents of the Trust
personally, but bind only the Trust Property, and all persons dealing with a
Fund's Market Class Shares of the Trust must look solely to the Trust property
belonging to such Fund's Market Class Shares for the enforcement of any claims
against the Trust.
Section 10. The Trust will preserve copies of this Plan, and any Agreements
and written reports regarding this Plan presented to the Board of Trustees for a
period of not less than six years.
2
<PAGE>
EXHIBIT I
Nations Cash Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Nations Money Market Reserves
Amended: February 4, 1998
NATIONS INSTITUTIONAL RESERVES
FORM OF
SHAREHOLDER SERVICING AGREEMENT
MARKET CLASS SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement ("Agreement")
with you concerning the provision of administrative support services to your
clients ("Customers") who may from time to time beneficially own Market Class
Shares in one or more of the portfolios (the "Funds") of Nations Institutional
Reserves (the "Trust").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own Market
Class Shares:1 (i) aggregating and processing purchase and redemption requests
for Market Class Shares from Customers and transmitting promptly net purchase
and redemption orders to our distributor or transfer agent; (ii) providing
Customers with a service that invests the assets of their accounts in Market
Class Shares pursuant to specific or pre-authorized instructions; (iii)
processing dividend and distribution payments from the Trust on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Market Class Shares; (v) arranging for bank wires; (vi) responding
to Customers' inquiries concerning their investment in Market Class Shares;
(vii) providing subaccounting with respect to Market Class Shares beneficially
owned by Customers or the information to us necessary for subaccounting; (viii)
if required by law, forwarding shareholder communications from us (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding this
Agreement; (x) general shareholder liaison services; and (xi) providing such
other similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules or regulations. All services
rendered hereunder by you shall be performed in a professional, competent and
timely manner.
Section 2. You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as agent or,
upon the order of, and for the account of, your Customers.
Section 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your
- --------
1 Services may be modified or omitted in the particular case and items
relettered or renumbered.
1
<PAGE>
business, or any personnel employed by you) as may be reasonably necessary or
beneficial in order to provide the administrative support services contemplated
hereby.
Section 4. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Market Shares except
those contained in our then current prospectuses and statements of additional
information, as amended or supplemented from time to time, copies of which will
be supplied by us to you, or in such supplemental literature or advertising as
may be authorized by the Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect, except as provided herein. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold us harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Market Class Shares (or orders relating
to the same) by or on behalf of Customers. You and your employees will, upon
request, be available during normal business hours to consult with us or our
designees concerning the performance of your responsibilities under this
Agreement.
Section 6. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payments therefor, a
fee as described in the applicable then current prospectuses. The fee rate
payable to you may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of Market Class Shares of any
and all Funds, including the sale of Market Class Shares to you for the account
of any Customer or Customers. Compensation payable under this Agreement is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice governing receipt by NASD members of
service fees from registered investment companies (the "NASD Service Fee Rule").
Such compensation shall only be paid if permissible under the NASD Service Fee
Rule and shall not be payable for services that are deemed to be
distribution-related services.
Section 7. You agree to provide to us at least quarterly, a written report
of the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which such
expenditures were made. In addition, you will furnish us or our designees with
such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Customers of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors or legal counsel
designated by us), in connection with the preparation of reports to our Board of
Trustees concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by law.
Section 8. We may enter into other similar Agreements with any other person
or persons without your consent.
2
<PAGE>
Section 9. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive in connection with the investment of your Customers'
assets in Market Class Shares of the Funds, will be disclosed by you to your
Customers to the extent required by applicable laws or regulations, will be
authorized by your Customers and will not result in an excessive or unreasonable
fee to you and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any Market Class Shares held for your own
account in the same proportion as the vote of the Market Class Shares held for
your Customers' benefit.
Section 10. You agree to conform to compliance standards adopted by the
Trust or its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and continues
in effect until terminated. This Agreement is terminable with respect to any
series of Market Class Shares, without penalty, at any time by us (which
termination may be by a vote of a majority of the disinterested Trustees of the
Trust) or by you upon written notice to the other party hereto.
Section 12. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated herein
(with a confirming copy by mail), or to such other address as either party shall
so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with the internal
laws of The Commonwealth of Massachusetts without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
Section 14. The names "Nations Institutional Reserves" and "Trustees" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated January 20, 1990 which is hereby referred to and a copy of which is
on file at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"Nations Institutional Reserves" entered into in the name or on behalf thereof
by any of the Trustees, officers, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, officers, representatives or agents of the Trust
personally, but bind only the Trust Property (as defined in the Declaration of
Trust), and all persons dealing with any class of shares of the Trust must look
solely to the Trust Property belonging to such class for the enforcement of any
claims against the Trust.
3
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return
it to us, at the following address: 111 Center Street, Little Rock, Arkansas
72201; Fax No. (501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS INSTITUTIONAL RESERVES
Date: ____________________ By:_____________________________
Name:___________________________
Title:__________________________
Accepted and Agreed to:
Servicing Agent
------------------------------
(Firm Name)
------------------------------
(Address)
------------------------------
(City) (State)
Fax # _________________________
Attention: ____________________
Date:_____________________________ By:____________________________
Name: _________________________
Title: ________________________
4
NATIONS INSTITUTIONAL RESERVES
DISTRIBUTION PLAN
MARKET SHARES
This Distribution Plan (the "Plan") has been adopted by the Board of
Trustees of Nations Institutional Reserves, doing business as Nations
Institutional Reserves, (the "Trust") on behalf of its Market Class Shares in
conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act").
Section 1. Payments for Distribution-Related Services. The Trust may
compensate or reimburse its Distributor for any activities or expenses primarily
intended to result in the sale of Market Class Shares of the Trust's Funds, as
listed on Exhibit A (collectively, the "Funds" or, individually, a "Fund").
Payments by the Trust under this Section of this Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trust's Board
of Trustees, provided that no rate set by the Board for any Fund may exceed, on
an annual basis, 0.20% of the average daily net asset value of a Fund's Market
Class Shares.
Section 2. Expenses Covered by Plan. The fees payable under Section 1 of
this Plan shall be used primarily to compensate or reimburse the Distributor for
distribution services provided by it, and related expenses incurred, including
payments by the Distributor to compensate or reimburse banks, broker/dealers or
other financial institutions that have entered into Sales Support Agreements
with the Distributor ("Selling Agents"), for sales support services provided,
and related expenses incurred, by such Selling Agents. Payments under Section 1
of this Plan may be made with respect to: preparation, printing and distribution
of prospectuses, sales literature and advertising materials by the Distributor
or, as applicable, Selling Agents, attributable to distribution or sales support
activities, respectively; commissions, incentive compensation or other
compensation to, and expenses of, account executives or other employees of the
Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
or Selling Agents, attributable to distribution or sales support activities,
respectively; opportunity costs relating to the foregoing (which may be
calculated as a carrying charge on the Distributor's or Selling Agents'
unreimbursed expenses incurred in connection with distribution or sales support
activities, respectively); and any other costs and expenses relating to
distribution or sales support activities. The overhead and other office expenses
referenced in this Section 2 may include, without limitation, (i) the expenses
of operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
Section 3. Distribution and Sales Support Agreements. Any officer of the
Trust is authorized to execute and deliver, in the name and on behalf of the
Trust, a written agreement
1
<PAGE>
with the Distributor in a form duly approved from time to time by the Trust's
Board of Trustees. Such agreement shall authorize the Distributor to enter into
written Sales Support Agreements, in substantially the form attached hereto as
Exhibit B ("Agreements"), with Selling Agents.
Section 4. Limitations on Payments. Payment made by a particular Fund under
Section 1 must be for distribution or sales support services rendered for or on
behalf of such Fund. However, joint distribution or sales support financing with
respect to the Funds (which financing may also involve other investment
portfolios or companies that are affiliated persons of such a person, or
affiliated persons of the Distributor) shall be permitted in accordance with
applicable regulations of the Securities and Exchange Commission as in effect
from time to time.
Except for the payments specified in Section 1, no additional payments are
to be made by the Trust under this Plan, provided that nothing herein shall be
deemed to preclude the payments such Funds are otherwise obligated to make (i)
to their investment adviser, administrator, co-administrator, transfer agent or
custodian pursuant to their respective agreements with the Trust, (ii) to
Servicing Agents pursuant to Shareholder Servicing Agreements and (iii) for the
expenses otherwise incurred by a Fund and the Trust on behalf of the Market
Class Shares in the normal conduct of such Fund's business pursuant to the
agreements referenced above. To the extent any such payments by the Trust on
behalf of a Fund to the Fund's investment adviser, administrator,
co-administrator, transfer agent, custodian or a Servicing Agent, or any
affiliate thereof, to any party pursuant to any agreement, or, generally, by the
Trust on behalf of a Fund to any party, are deemed to be payments for the
financing of any activity primarily intended to result in the sale of the Market
Class Shares within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been approved pursuant to this Plan without
regard to Section 1.
With respect to Market Class Shares, actual distribution expenses incurred
by the Distributor (or sales support expenses incurred by Selling Agents) in a
given year may exceed the sum of the fees received by the Distributor pursuant
to this Plan. Any such excess may be recovered by the Distributor, and retained
by it or paid over to Selling Agents, as applicable, in future years as long as
this Plan is in effect. If this Plan is terminated or not continued, the Trust
shall not be obligated to pay the Distributor (or Selling Agents) for any
expenses not previously reimbursed by the Trust.
Notwithstanding anything herein to the contrary, no Fund shall be obligated
to make any payments under this Plan that exceed the maximum amounts payable
under Article III, Section 26 of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
Section 5. Reports of Distributor. So long as this Plan is in effect, the
Distributor shall provide to the Trust's Officers and Board of Trustees, and the
Trustees shall review at least quarterly, a written report of the amounts
expended by it pursuant to the Distribution Agreement, or by Selling Agents
pursuant to Sales Support Agreements, and the purposes for which such
expenditures were made.
2
<PAGE>
Section 6. Approval of Plan. This Plan will become effective immediately, as
to any Fund's Market Class Shares, upon its approval by (a) a majority of the
outstanding Market Class Shares of such Fund, and (b) a majority of the Board of
Trustees, including a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of this Plan or in any agreements entered
into in connection with this Plan, pursuant to a vote cast in person at a
meeting called for the purpose of voting on the approval of this Plan.
Section 7. Continuance of Plan. This Plan shall continue in effect for so
long as its continuance is specifically approved at least annually by the
Trust's Board of Trustees in the manner described in Section 6.
Section 8. Amendments. This Plan may be amended at any time by the Board of
Trustees provided that (a) any amendment to increase materially the costs which
a Fund's Market Class Shares may bear for distribution pursuant to this Plan
shall be effective only upon approval by a vote of a majority of the outstanding
Market Class Shares of such Fund, and (b) any material amendments of the terms
of this Plan shall become effective only upon approval as provided in Section 6
hereof.
Section 9. Termination. This Plan is terminable, as to a Fund's Market Class
Shares, without penalty at any time by (a) a vote of a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust and
who have no direct or indirect financial interest in the operation of this Plan
or in any agreements entered into in connection with this Plan, or (b) a vote of
a majority of the outstanding Market Class Shares of such Fund.
Section 10. Selection/Nomination of Trustees. While this Plan is in effect,
the selection and nomination of those Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust shall be committed to the discretion
of such non-interested Trustees.
Section 11. Limitation of Liability. The names "Nations Institutional
Reserves" and "Trustees of Nations Institutional Reserves" refer respectively to
the trust created and the Trustees, as Trustees but not individually or
personally, acting from time to time under a Declaration of Trust dated January
22, 1990, which is hereby referred to and a copy of which is on file at the
office of the State Secretary of The Commonwealth of Massachusetts and at the
principal office of the Trust. The obligations of "Nations Institutional
Reserves" entered into in the name or on behalf thereof by any of the Trustees,
officers, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders,
officers, representatives or agents of the Trust personally, but bind only the
Trust property, and all persons dealing with a Fund's Market Class Shares of the
Trust must look solely to the Trust property belonging to such Fund's Market
Class Shares for the enforcement of any claims against the Trust.
Section 12. Records. The Trust will preserve copies of this Plan, and any
Agreements and written reports regarding this Plan presented to the Board of
Trustees for a period of not less than six years.
3
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Section 13. Miscellaneous. The captions in this Plan are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
4
<PAGE>
EXHIBIT A
NATIONS INSTITUTIONAL RESERVES
Nations Cash Reserves
Nations Government Reserves
Nations Treasury Reserves
Nations Municipal Reserves
Nations Money Market Reserves
Amended: February 4, 1998
5
THE CAPITOL MUTUAL FUNDS
FAMILY OF FUNDS
BROKERAGE AGREEMENT
Ladies and Gentlemen:
We are the exclusive distributor of the shares of the portfolios of
The Capitol Mutual Funds ("Capitol Funds") (each a "Fund" and collectively the
"Funds") pursuant to the terms of a Distribution Agreement with Capitol Funds.
We invite you, as agent for your customer, to participate in the sale of those
Fund shares listed on Schedule I hereto (the "Shares"), as such Schedule may be
amended from time to time, on the following terms:
1. EXEMPTION FROM REQUIREMENT TO REGISTER AS A BROKER OR DEALER
(a) You represent and warrant that you are a bank exempt from registration
as a broker-dealer under the federal securities laws, and that you will conduct
your activities hereunder and otherwise in a manner so as to remain exempt from
such registration and in compliance with the provisions of the Glass-Steagall
Act and all other rules and regulations that are now or may become applicable to
you and your activities hereunder.
(b) You represent and warrant that you are exempt from being required to
register or qualify to act as a broker or dealer in the states or other
jurisdictions where you transact business. If such exemption becomes no longer
available to you, you agree to immediately become registered or qualified to act
in such capacity in those jurisdictions where such exemption is no longer
available. You agree to comply with all applicable federal, state and local
laws, including, without limiting the generality of the foregoing, the
Securities Act of 1933 ("1933 Act"), the Securities Exchange Act of 1934 (the
"1934 Act") and the Investment Company Act of 1940 ("1940 Act"), and all
applicable rules or regulations thereunder. You agree to offer and sell Shares
only in the states and other jurisdictions in which we have indicated that such
offers and sales can be made and in which you are permitted to so act. You
further agree not to offer or sell Shares outside the several states,
territories or possessions of the United States.
2. SALE OF FUND SHARES
(a) You agree to offer and sell Shares of the Funds to your customers
("Customers") only at the applicable public offering price (which is the net
asset value per share) then in effect as described in the respective Fund's then
currently effective prospectus, including any supplements or amendments thereto
("Prospectus"). You may establish and charge reasonable service fees to your
Customers for processing exchange or redemption orders for Shares, provided you
disclose the fees to your Customers and provided further that such fees do not
constitute sales loads as defined in Section 2(a)(35) of the 1940 Act.
<PAGE>
(b) You agree to provide reasonable sales support assistance in connection
with the sale of those Shares for which a distribution plan has been adopted
pursuant to Rule 12b-1 under the 1940 Act to your Customers, which assistance
may include forwarding sales literature and advertising provided by us to your
Customers and providing such other sales support assistance as may be requested
by us from time to time. All support services rendered by you shall be performed
in a professional, competent and timely manner.
(c) We will furnish you, upon request, with a reasonable quantity of copies
of the Prospectuses, Statements of Additional Information, sales literature
issued by us supplemental to the Prospectuses and Statements of Additional
Information ("Sales Literature") and amendments and supplements thereto. You
agree that if and when we supply you with copies of any supplements to any
Prospectus, you will affix copies of such supplements to all such Prospectuses
in your possession, that thereafter you will distribute such Prospectuses only
with such supplements affixed, and that you will present purchase orders for
Shares ("Purchase Orders") only from persons who have received Prospectuses with
such supplements affixed. You agree not to use Sales Literature in connection
with the solicitation of Purchase Orders for Shares unless accompanied or
preceded by the relevant Prospectus.
(d) You agree not to hold Shares that may be subject to a contingent
deferred sales charge in an account registered in your name or in the name of
your nominee for the benefit of your Customers. You agree to hold such Shares in
a separate account for each Customer who is a beneficial owner of Fund Shares
(e) You agree to submit to us, for review and approval prior to use, any
sales literature prepared by you regarding the Funds that you wish to distribute
to your Customers.
(f) We agree to prepare all sales literature and prospectuses to comply
with the disclosure and advertising guidelines set forth in the National
Association of Securities Dealers, Inc. Rules of Fair Practice and in accordance
with applicable laws and regulations.
3. EXECUTION OF PURCHASE ORDERS AND REDEMPTION OF SHARES
(a) Any Purchase Orders for Shares received from you and accepted by us
will be executed at the applicable public offering price next determined after
our receipt and acceptance of such Purchase Order in accordance with the
Prospectuses. All Purchase Orders must meet the applicable minimum initial and
subsequent investment requirements as described and set forth in the
Prospectuses. You agree to date and time stamp all orders received by you and to
promptly forward all Purchase Orders to us or the Funds' Transfer Agent in time
for processing at the public offering price next determined after receipt by
you. You agree that you will not withhold Purchase Orders or purchase Shares in
anticipation of receiving Purchase Orders from Customers. The procedures
applicable to the handling of Purchase Orders shall be subject to such
instructions as may be issued by us or the Funds' Transfer Agent from time to
time.
2
<PAGE>
(b) All Purchase Orders are subject to acceptance by us and confirmation by
the Funds or their Transfer Agent. We reserve the right in our sole discretion
to reject any Purchase Order, including contingent or conditional Purchase
Orders, in whole or in part. We also reserve the right in our discretion without
notice to you to suspend sales or withdraw the offering of Shares, in whole or
part.
(c) If payment for Shares purchased hereunder is not received or made
within the applicable time period specified in the governing Prospectus, or if
you cancel any order at any time after our acceptance of the Purchase Order, we
reserve the right to cancel the sale (or, at our option, to redeem the Shares),
in which case you shall be responsible to the Funds, their Transfer Agent and us
for any losses, claims, damages or expenses resulting from your failure to make
payment or cancellation as aforesaid.
(d) You agree to purchase Shares only through us. Purchases through us
shall be made only for the purpose of covering Purchase Orders already received
from your Customers or for your bona fide investment. All transactions in Shares
shall be subject to the terms and provisions set forth in the Prospectuses.
(e) Shares purchased hereunder will not be issued in certificated form
except where permitted by the applicable Prospectus, upon written request by you
or your Customer, and only when payment and proper registration or transfer
instructions have been received by the Funds or their Transfer Agent.
4. REPRESENTATION REGARDING THE ACCURACY OF CUSTOMER INSTRUCTIONS
If a Customer's account with a Fund is established without the
Customer signing an Account Application, you represent that the instructions
relating to the registration and shareholder options selected (whether on the
Account Application, in some other document or orally) are in accordance with
the Customer's instructions, and you shall be responsible to the Funds, their
Transfer Agent and us for any losses, claims, damages or expenses resulting from
acting upon such instructions.
5. NATIONSBANK OF VIRGINIA, N.A. IS NOT AN AGENT FOR STEPHENS OR THE FUNDS
(a) You have no authority whatsoever to act as agent for, partner of, or
participant in, a joint venture with the Funds or us or any other member of the
Selling Group, and nothing in this Agreement shall constitute either of us the
agent of the other or shall constitute you, or the Funds the agent of each
other. In all transactions in Shares, you are acting as agent for your Customer
and we are acting as agent for the Funds and not as principal.
(b) Neither you nor any of your officers, employees or agents is authorized
to make any representations concerning us, the Funds or the Shares except those
contained in the Prospectuses and Statements of Additional Information, and in
Sales Literature provided by us or the Funds. In purchasing Shares through us,
you shall rely solely upon the representations contained in the Prospectuses,
the Statements of Additional Information and Sales Literature.
3
<PAGE>
6. PROTECTION AGAINST UNAUTHORIZED USE OF THE FUNDS' RECORDKEEPING SYSTEMS
You agree to provide such security as is necessary to prevent any
unauthorized use of the Funds' recordkeeping system, accessed via any computer
hardware or software provided to you by us or the Transfer Agent.
7. COMPENSATION
(a) As compensation for the sales support assistance provided by you under
Paragraph 2(b) hereof, we will pay to you, and you will accept as full payment
therefor, a periodic fee based upon a percentage of the average daily net asset
value of the Fund Shares attributable to you, as disclosed in the governing
Prospectus. Such fees shall be used primarily for sales support services
provided, and related expenses incurred, by you. The fee rate payable to you may
be prospectively increased or decreased at any time upon notice to you.
8. REPORTS
You agree to provide us at least quarterly a written report of the
amounts expended by you in connection with the provision of the sales support
services referenced in Paragraph 2(b) hereof and the purposes for which such
expenditures were made. In addition, you agree to cooperate with us in
connection with the preparation of reports to the Board of Trustees of Capitol
Funds or regulatory authorities concerning this Agreement and the amounts
expended pursuant hereto.
9. DISCLOSURES TO SHAREHOLDERS
You agree and warrant that the compensation payable to you under
this Agreement, together with any other compensation you receive in connection
with the investment of your Customers' assets in Shares, will be disclosed by
you to your Customers to the extent required by applicable laws and regulations,
will be authorized by your Customers and will not result in an excessive or
unreasonable fee to you.
10. PROTECTION AGAINST UNAUTHORIZED USE OF CUSTOMER NAMES
The names of your Customers are and shall remain your sole property
and shall not be used by us for any purpose except for servicing and
informational mailings in the normal course of business. The provisions of this
paragraph shall survive the termination of this Agreement.
11. INDEMNIFICATION
(a) You agree to indemnify the Funds, their Transfer Agent and us for any
losses, claims, damages or expenses arising out of or in connection with any
wrongful act or omission by you, your representatives, agents or sub-agents not
in accordance with this Agreement, provided that such losses, claims, damages or
expenses were not caused by the willful misfeasance, bad faith or gross
negligence by us, our representatives, agents or sub-agents.
4
<PAGE>
(b) We agree to indemnify you for any losses, claims, damages or expenses
arising out of or in connection with any wrongful act or omission by us,
provided that such losses, claims, damages or expenses were not caused by the
willful misfeasance, bad faith or gross negligence by you, your representatives,
agents or sub-agents.
(c) The provisions of this paragraph shall survive the termination of this
Agreement.
12. AMENDMENT AND TERMINATION OF AGREEMENT
(a) This Agreement shall become effective upon receipt by us of a signed
copy hereof, and shall cancel and supersede any and all prior Selling Group
Agreements or similar agreements or contracts relating to the distribution of
the Shares between you and the Funds or their distributor. We reserve the right
to amend this Agreement at any time. Any amendments to this Agreement shall be
deemed accepted by you, and will take effect with respect to, and on the date
of, any orders placed by you after the date set forth in any notice of amendment
sent by us to you.
(b) This Agreement may be terminated upon written notice by either party at
any time, and shall automatically terminate upon its assignment by you, whether
by operation of law or otherwise, or by us otherwise than by operation of law.
We reserve the right to cancel this Agreement at any time without notice if any
Shares are offered for sale by you at less than the applicable public offering
price as set forth in the Prospectuses.
13. NOTICES
All communications to us shall be sent to us by first class mail,
postage prepaid, or by confirmed telefacsimile at 111 Center Street, Little
Rock, Arkansas 72201; telefacsimile (501) 377-2331. Any notice to you shall be
duly given if sent by first class mail, postage prepaid, or by confirmed
telefacsimile to you at your address or telefacsimile number as set forth on the
signature page hereof. Any party that changes its address or telefacsimile
number shall promptly notify the other party in accordance with the terms of
this paragraph.
14. MISCELLANEOUS
(a) This Agreement is in all respects subject to statements regarding the
sale and repurchase or redemption of Shares made in the Prospectuses, and to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
pursuant to the Interagency Statement on Retail Sales on Nondeposit Investment
Products dated February 15, 1994, which shall control and override any provision
to the contrary in this Agreement. You further acknowledge that this Agreement
has been entered into pursuant to Rule 12b-1 under the 1940 Act, and is subject
to the provisions of that Rule as well as any other applicable rules and
regulations promulgated by the Securities and Exchange Commission.
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(b) The sub-headings in this Agreement are for convenience only and are not
a part of the Agreement.
15. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Arkansas without giving effect to principles of
conflict of laws.
Date: November 18, 1994 STEPHENS INC.
BY: ____________________________
TITLE: _________________________
The undersigned accepts this invitation to become a member of the Selling Group
and agrees to abide by the foregoing terms and conditions.
Print Firm Name: NATIONSBANK OF VIRGINIA, N.A.
Address: ____________________________
____________________________
____________________________
Telephone: (___) ______________________
Telefacsimile: (___) ________________
Date: November 18, 1994
By: __________________________
Name: ________________________
Title: _______________________
Please execute this Agreement in duplicate
and return one copy to Stephens Inc.
6
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SCHEDULE I
Capitol Cash Reserves - Class C Shares
Capitol Government Reserves - Class C Shares
Capitol Treasury Reserves - Class C Shares
Capitol Tax Free Reserves - Class C Shares
7
NATIONS INSTITUTIONAL RESERVES
SHAREHOLDER SERVICING PLAN ("PLAN")
LIQUIDITY CLASS SHARES
Section 1. Each of the proper officers of Nations Institutional
Reserves (the "Trust") is authorized to execute and deliver, in the name and on
behalf of the Trust, written agreements based substantially on the form attached
hereto as Appendix A or (a) duly approved by the Trust's Board of Trustees or
(b) approved and entered into by the officers of the Trust, with advice of
counsel, and ratified by the Board of Trustees ("Agreements") with
broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship ("Servicing
Agents") with the beneficial owners of Liquidity Class Shares in any of the
Trust's Funds (collectively, "Shares") provided that any material modifications
of services listed in the Agreement shall be presented for approval or
ratification by the Trustees at the next regularly scheduled Board Meeting.
Pursuant to such Agreements, Servicing Agents shall provide shareholder support
services as set forth therein to their clients who beneficially own Shares of
the portfolios listed on Exhibit I (the "Funds") in consideration of a fee,
computed monthly in the manner set forth in the applicable Fund's then current
prospectus, at an annual rate of up to 0.25% of the average daily net asset
value of the Shares beneficially owned by or attributable to such clients.
Affiliates of the Trust's distributor, administrator, co-administrator and
adviser are eligible to become Servicing Agents and to receive fees under this
Plan. All expenses incurred by a Fund in connection with the Agreements and the
implementation of this Plan shall be borne either by the holders of the Shares
of the particular Fund involved. If more than one Fund is involved and these
expenses are not directly attributable to Shares of a particular Fund, then the
expenses may be allocated between or among the Shares of the Funds in a fair and
equitable manner.
Section 2. The Trust's administrator and/or co-administrator shall
monitor the arrangements pertaining to the Trust's Agreements with Servicing
Agents. The Trust's administrator and co-administrator shall not, however, be
obligated by this Plan to recommend, and the Trust shall not be obligated to
execute, any Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, the Trust's distributor
shall provide to the Trust's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended pursuant to this
Plan and the purposes for which such expenditures were made.
Section 4. This Plan may be amended at any time with respect to any
Fund by the Trust's Board of Trustees, provided that any material amendment of
the terms of this Plan (including a material increase of the fee payable
hereunder) shall become effective only upon approved by a majority of the Board
of Trustees, including a majority of the Trustees who are not "interested
persons," as defined in the Investment Company Act of 1940, of the Trust and
have no direct or indirect financial interest in the operation of this Plan or
in any Agreement related to
<PAGE>
this Plan (the "Disinterested Trustees") cast in person at a meeting called for
the purpose of voting on this Plan.
Section 5. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
Section 6. While this Plan is in effect, the selection and nomination
of the Disinterested Trustees shall be committed to the discretion of such
Disinterested Trustees.
Section 7. The Trust will preserve copies of this Plan, Agreements, and
any written reports regarding this Plan presented to the Board of Trustees for a
period of not less than six years.
Adopted, as revised, on July 10, 1996
2
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EXHIBIT I
Nations Cash Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Nations Money Market Reserves
Adopted: July 10, 1996
Amended: February 4, 1998
NATIONS INSTITUTIONAL RESERVES
RULE 18F-3 MULTI-CLASS PLAN
I. INTRODUCTION.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares in the investment portfolios of
Nations Institutional Reserves ("Nations Reserves") (formerly known as The
Capitol Mutual Funds). In addition, this Rule 18f-3 Multi-Class Plan (the
"Plan") sets forth the maximum initials sales loads, contingent deferred sales
charges, Rule 12b-1 distribution fees, shareholder servicing fees, conversion
features, exchange privileges and other shareholder services, if any, applicable
to a particular class of shares of the portfolios. The Plan also identifies
expenses that may be allocated to a particular class of shares to the extent
they are actually incurred in a different amount by the class or relate to a
different kind or degree of services provided to the class.
Nations Reserves is an open-end series investment company registered
under the 1940 Act, the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Registration Nos. 33-33144 and 811-6030). Nations
Reserves elects to offer multiple classes of shares in its investment portfolios
pursuant to the provisions of Rule 18f-3 and this Plan.
Nations Reserves currently consists of the following five separate
investment portfolios: Nations Cash Reserves, Nations Treasury Reserves, Nations
Government Reserves, Nations Municipal Reserves and Nations Money Market
Reserves (the "Funds").
The Funds are authorized to issue the following classes of shares
representing interests in the Funds: Capital Class Shares, Liquidity Class
Shares, Adviser Class Shares and Market Class Shares.
II. ALLOCATION OF EXPENSES.
A. Pursuant to Rule 18f-3 under the 1940 Act, Nations Reserves shall
allocate to each class of shares in a Fund (i) any fees and expenses incurred by
Nations Reserves in connection with the distribution of such class of shares
under a distribution plan adopted for such class of shares pursuant to Rule
12b-1, and (ii) any fees and expenses incurred by Nations Reserves under a
shareholder servicing plan in connection with the provision of shareholder
services to the holders of such class of shares.
B. In addition, pursuant to Rule 18f-3, Nations Reserves may allocate
the following fees and expenses to a particular class of shares in a single
Fund:
(i) transfer agent fees identified by the transfer agent as being
attributable to such class of shares;
1
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(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses,
reports, and proxies to current shareholders of such class of
shares or to regulatory agencies with respect to such class of
shares;
(iii) blue sky registration or qualification fees incurred by such
class of shares;
(iv) Securities and Exchange Commission registration fees incurred by
such class of shares;
(v) the expense of administrative personnel and services (including,
but not limited to, those of a portfolio accountant, custodian or
dividend paying agent charged with calculating net asset values
or determining or paying dividends) as required to support the
shareholders of such class of shares;
(vi) litigation or other legal expenses relating solely to such class
of shares;
(vii) fees of the Trustees of Nations Reserves incurred as result of
issues relating to such class of shares;
(viii) independent accountants' fees relating solely to such class of
shares; and
(ix) any other fees and expenses, not including advisory or custodial
fees or other expenses related to the management of the Fund's
assets, relating to (as defined below) such class of shares.
C. For all purposes under this Plan, fees and expenses "relating to" a
class of shares are those fees and expenses that are actually incurred in a
different amount by the class or that relate to a different kind or degree of
services provided to the class. The proper officers of Nations Reserves shall
have the authority to determine whether any or all of the fees and expenses
described in Section B of this Part II should be allocated to a particular class
of shares.
D. Income, realized and unrealized capital gains and losses, and any
expenses of a Fund allocated to each class of the Fund on the basis of the
relative net assets (settled shares), as defined in Rule 18f-3, of that class in
relation to the net assets of the Fund.
E. In certain cases, NationsBanc Advisors, Inc., TradeStreet Investment
Associates, Inc., Stephens Inc., First Data Investor Services Group, Inc.
(formerly The Shareholder Services Group, Inc.), or another service provider for
a Fund may waive or reimburse all or a portion of the expenses of a specific
class of shares of the Fund. The Board of Trustees will monitor any such waivers
or reimbursements to ensure that they do not provide a means for
cross-subsidization between classes.
2
<PAGE>
III. CLASS ARRANGEMENTS.
The following summarizes the maximum front-end sales charges,
contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder
servicing fees, conversion features, exchange privileges and other shareholder
services, if any, applicable to each class of shares of Nations Reserves.
Additional details regarding such fees and services are set forth in the
relevant Fund's current Prospectus and Statement of Additional Information.
A. CAPITAL CLASS SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: None
4. Maximum Shareholder Servicing Fees: None
5. Conversion Features/Exchange Privileges: Capital Class Shares
of a Fund shall have such conversion features and exchange
privileges, if any, as are determined by or ratified by the
Board of Trustees of Nations Reserves and described in the
then-current prospectus for such shares of such Fund.
6. Other Shareholder Services: None
B. LIQUIDITY CLASS SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the Liquidity
Class Shares of each Fund may reimburse Stephens for
certain expenses incurred by Stephens in connection with
the distribution of Liquidity Class Shares. Such
reimbursement payments may not exceed 0.30%, on an annual
basis, of the average daily net assets of such shares. In
addition, the Distribution Plan permits the Liquidity
Class Shares of Nations Cash Reserves, Nations Government
Reserves, Nations Municipal Reserves and Nations Money
Market Reserves to pay Stephens up to 0.30%, and Nations
Treasury Reserves to pay Stephens up to 0.35%, on an
annual basis, of the average daily net assets of such
shares which Stephens can use to compensate financial
institutions that provide administrative and/or
distribution services to the holders of Liquidity Class
Shares.
3
<PAGE>
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Liquidity Class Shares of each Fund may
pay shareholder servicing fees of up to 0.25% of the average
daily net assets of such shares.
5. Conversion Features/Exchange Privileges: Liquidity Class
Shares of a Fund shall have such conversion features and
exchange privileges, if any, as are determined by or ratified
by the Board of Trustees of Nations Reserves and described in
the then-current prospectus for such shares of such Fund.
6. Other Shareholder Services: None
C. ADVISER CLASS SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution/Shareholder Servicing
Fees: Pursuant to a Shareholder Servicing Plan adopted
under Rule 12b-1, Adviser Class Shares of each Fund may
pay shareholder servicing fees of up to 0.25%, on an
annual basis, of the average daily net assets of such
shares. The Adviser Class Shareholder Servicing Plan
provides that, to the extent any portion of the fees
payable under the Plan is deemed to be primarily for
distribution-related services, such fees are deemed
approved pursuant to the Shareholder Servicing Plan and
Rule 12b-1.
4. Conversion Features/Exchange Privileges: Adviser Class Shares
of a Fund shall have such conversion features and exchange
privileges, if any, as are determined by or ratified by the
Board of Trustees of Nations Reserves and described in the
then-current prospectus for such shares of such Fund.
5. Other Shareholder Services. None
D. MARKET CLASS SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the Market Class
Shares of each Fund may
4
<PAGE>
pay distribution fees of up to 0.20%
of the average daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder
Servicing Plan, the Market Class Shares of each Fund may pay
shareholder servicing fees of up to 0.25% of the average
daily net assets of such shares.
5. Conversion Features/Exchange Privileges: Market Class Shares
of a Fund shall have such conversion features and exchange
privileges, if any, as are determined by or ratified by the
Board of Trustees of Nations Reserves and described in the
then-current prospectus for such shares of such Fund.
6. Other Shareholder Services: None
IV. BOARD REVIEW.
The Board of Trustees of Nations Reserves shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan with respect to a Fund's shares, the Board of Trustees of Nations Reserves,
including a majority of the Trustees who are not interested persons of Nations
Reserves, shall find that the Plan, as proposed to be amended (including any
proposed amendments to the method of allocating class and/or fund expenses), is
in the best interests of each class of shares of the Fund individually, and the
Fund as a whole. In considering whether to approve any proposed amendment(s) to
the Plan, the Trustees of Nations Reserves shall request and evaluate such
information as they consider reasonably necessary to evaluate the proposed
amendment(s) to the Plan.
Adopted: April 12, 1995
Amended: July 13, 1995
September 7, 1995
February 4, 1998
