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 multi ple 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 TREASURY RESERVES, NATIONS GOVERNMENT RESERVES, NATIONS
MUNICIPAL RESERVES AND NATIONS MONEY MARKET 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 fiduci
ary, agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") dated May 22, 1998 for Nations Money Market Reserves and
dated September 1, 1997 for the remaining Funds has been filed with the
Securities and Exchange Commission ("SEC") and is available without charge by
writing or calling the Trust at the address or telephone number indicated in the
column to the right. The SAI is incorporated into this Prospectus by reference.
The SEC maintains a Web site (http://www.sec.gov) that contains the SAI,
material incorporated by reference in this Prospectus and other information
regarding registrants that file electronically with the SEC. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is investment sub-adviser to the
Funds. As used herein the term "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH SHARES ARE
NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
FUNDS INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. NATIONSBANK
AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO THE TRUST, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH NATIONSBANK, IS THE
SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
LIQUIDITY 5/98
Nations Cash Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves
Nations Money Market Reserves
LIQUIDITY CLASS SHARES
SEPTEMBER 1, 1997
AS SUPPLEMENTED ON MAY 22, 1998
For Fund information call:
1-800-626-2275
or write:
Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUNDS
1
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
- ---------------------------------------------------
Expenses Summary 4
- ---------------------------------------------------
Financial Highlights 6
- ---------------------------------------------------
Objectives 10
- ---------------------------------------------------
How Objectives Are Pursued 10
- ---------------------------------------------------
General Investment Policies 13
- ---------------------------------------------------
How Performance Is Shown 15
- ---------------------------------------------------
How The Funds Are Managed 16
- ---------------------------------------------------
Organization And History 19
- ---------------------------------------------------
About Your Investment
How To Buy Shares 20
- ---------------------------------------------------
How To Redeem Shares 21
- ---------------------------------------------------
How To Exchange Shares 22
- ---------------------------------------------------
Distribution And Shareholder Servicing Plans 23
- ---------------------------------------------------
How The Funds Value Their Shares 24
- ---------------------------------------------------
How Dividends And Distributions Are Made; Tax
Information 24
- ---------------------------------------------------
Appendix A -- Portfolio Securities 25
- ---------------------------------------------------
Appendix B -- Description Of Ratings 33
- ---------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR ITS DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUNDS OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
- --------------------------------------------------------------------------------
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree
of liquidity while providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) 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.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves, Nations Municipal Reserves and
Nations Money Market Reserves declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Liquidity Class
Shares is $500,000.
3
<PAGE>
- --------------------------------------------------------------------------------
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Liquidity Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable to
a hypothetical $1,000 investment in the Liquidity Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
Cash Treasury Government Municipal Money Market
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .14% .14% .14% .14% .10%
- --------------------------------------------------------------------------------------------------------------------
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 Expense Waivers) .06% .06% .06% .06% .10%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee
and/or Expense Waivers) .35% .35% .35% .35% .35%
</TABLE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Liquidity Class Shares of the indicated Fund assuming (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years
<S> <C> <C> <C>
Nations Cash Reserves $4 $11 $20
- ---------------------------------------------------------------------------------------------------------------------
Nations Treasury Reserves $4 $11 $20
- ---------------------------------------------------------------------------------------------------------------------
Nations Government Reserves $4 $11 $20
- ---------------------------------------------------------------------------------------------------------------------
Nations Municipal Reserves $4 $11 $20
- ---------------------------------------------------------------------------------------------------------------------
Nations Money Market Reserves $4 $11 $20
<CAPTION>
10 Years
<S> <C>
Nations Cash Reserves $44
- -------------------------------------------------------
Nations Treasury Reserves $44
- -------------------------------------------------------
Nations Government Reserves $44
- -------------------------------------------------------
Nations Municipal Reserves $44
- -------------------------------------------------------
Nations Money Market Reserves $44
</TABLE>
4
<PAGE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts for the Funds' current fiscal year and reflect anticipated fee
waivers and/or reimbursements. Except for Nations Money Market Reserves, whose
expenses are based on estimates, certain figures contained in the above tables
are based on amounts incurred during each Fund's most recent fiscal year and
have been adjusted as necessary to reflect current service provider fees and/or
reimbursements. There is no assurance that any fee waivers and/or reimbursements
will continue. In particular, to the extent other expenses are less than
expected, waivers and/or reimbursements of management fees, if any, may
decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts in the "Examples" above may increase. The
information set forth in the foregoing table and examples relates only to the
Liquidity Class Shares. The Trust also offers Capital Class, Adviser Class and
Market Class Shares of the Funds. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees", "Rule 12b-1 Fees", "Shareholder Servicing
Fees", "Other Expenses" and "Total Operating Expenses" for Nations Cash Reserves
would be .30%, .60%, .25%, .15% and 1.30% of average net assets, respectively;
for Nations Treasury Reserves would be .30%, .65%, .25%, .15% and 1.35% of
average net assets, respectively; for Nations Government Reserves would be .30%,
.60%, .25%, .15% and 1.30% of average net assets, respectively; for Nations
Municipal Reserves would be .30%, .60%, .25%, .15% and 1.30% of average net
assets, respectively; and for Nations Money Market Reserves would be .30%, .60%,
.25%, .19% and 1.34% of average net assets, respectively.
5
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. As of the date of this Prospectus, no
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.
For more information see "Organization and History." Shareholders of the Funds
will receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
NATIONS CASH RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.0516 0.0555 0.0471 0.0273 0.0305 0.0482 0.0197
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends From Net
Investment Income (0.0516) (0.0555) (0.0471) (0.0273) (0.0305) (0.0482) (0.0197)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.28% 5.70% 4.81% 2.77% 3.09% 4.92% 6.44%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 419,851 $ 35,447 $ 2 $ 69,786 $ 19,411 $ 4,776 $ 10,361
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets 0.35% 0.35% 0.38% 0.55% 0.55% 0.55% 0.55%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.17% 5.38% 4.87% 2.74% 2.96% 4.94% 6.41%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.60% 0.66% 0.61% 0.65% 0.68% 0.85% 0.87%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.92% 5.07% 4.64% 2.64% 2.82% 4.64% 6.09%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Per
Share Without Waivers $ 0.0491 $ 0.0523 $ 0.0448 $ 0.0262 $ 0.0287 $ 0.0447 $ 0.0186
</TABLE>
* Nations Cash Reserves Liquidity Class Shares commenced operations on January
9, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS TREASURY RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment Income 0.0504 0.0541 0.0462 0.0263 0.0288 0.0454 0.0173
- ----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain On
Investments -- -- -- -- 0.0001 0.0003 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 0.0504 0.0541 0.0462 0.0263 0.0289 0.0457 0.0173
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends From Net
Investment Income (0.0504) (0.0541) (0.0462) (0.0263) (0.0288) (0.0454) (0.0173)
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions From Net
Realized Gains -- -- -- -- (0.0001) (0.0003) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.0504) (0.0541) (0.0462) (0.0263) (0.0289) (0.0457) (0.0173)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.15% 5.57% 4.71% 2.67% 2.93% 4.64% 5.79%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 81,575 $ 11,804 $ 674 $ 14,227 $ 3,369 $ 2,807 $ 2,891
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets 0.35% 0.35% 0.49% 0.55% 0.55% 0.52% 0.55%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.05% 5.35% 4.50% 2.67% 2.89% 4.62% 5.75%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.61% 0.66% 0.79% 0.87% 1.07% 1.32% 1.04%+
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.79% 5.04% 4.21% 2.35% 2.37% 3.82% 5.26%+
- ----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Per
Share Without Waivers $ 0.0478 $ 0.0510 $ 0.0431 $ 0.0232 $ 0.0213 $ 0.0349 $ 0.0160
</TABLE>
* Nations Treasury Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment Income 0.0505 0.0537 0.0453 0.0268 0.0302 0.0461
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gain On
Investments -- -- -- -- -- 0.0023
- ------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 0.0505 0.0537 0.0453 0.0268 0.0302 0.0484
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends From Net
Investment Income (0.0505) (0.0537) (0.0453) (0.0268) (0.0302) (0.0461)
- ------------------------------------------------------------------------------------------------------------------------
Distributions From Net
Realized Gains -- -- -- -- -- (0.0023)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.0505) (0.0537) (0.0453) (0.0268) (0.0302) (0.0484)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.19% 5.51% 4.59% 2.71% 3.05% 4.70%
- ------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 6,482 $ 129 $ 2 $ 259,836 $ 149,252 $ 12,486
- ------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets 0.35%(a) 0.35% 0.40% 0.55% 0.55% 0.55%
- ------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.07% 5.33% 4.27% 2.68% 2.71% 4.46%
- ------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.64%(a) 0.68% 0.62% 0.61% 0.74% 0.86%
- ------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 4.78% 5.00% 4.05% 2.62% 2.52% 4.18%
- ------------------------------------------------------------------------------------------------------------------------
Net Investment Income
Per Share Without
Waivers $ 0.0476(a) $ 0.0504 $ 0.0430 $ 0.0262 $ 0.0274 $ 0.0422
<CAPTION>
<S> <C>
For a Liquidity Class
Share outstanding PERIOD ENDED
throughout each period: 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00
- -----------------------
Income From Investment
Operations:
Net Investment Income 0.0176
- -----------------------
Net Realized Gain On
Investments --
- -----------------------
Total From Investment
Operations 0.0176
- -----------------------
Less Distributions:
Dividends From Net
Investment Income (0.0176)
- -----------------------
Distributions From Net
Realized Gains --
- -----------------------
Total Distributions (0.0176)
- -----------------------
Net Asset Value, End Of
Year $ 1.00
- -----------------------
Total Return++ 6.04%+
- -----------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 5,589
- -----------------------
Ratio Of Operating
Expenses To Average
Net Assets 0.55%+
- -----------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.86%+
- -----------------------
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.94%+
- -----------------------
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 5.47%+
- -----------------------
Net Investment Income
Per Share Without
Waivers $ 0.0170
</TABLE>
* Nations Government Reserves Liquidity Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES LIQUIDITY CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
For a Liquidity Class
Share outstanding YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
throughout each period: 4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 4/30/92 4/30/91*
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.0323 0.0347 0.0304 0.0188 0.0221 0.0346 0.0478
- --------------------------------------------------------------------------------------------------------------------------------
Dividends From Net
Investment Income (0.0323) (0.0347) (0.0304) (0.0188) (0.0221) (0.0346) (0.0478)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total Return++ 3.29% 3.52% 3.09% 1.90% 2.24% 3.52% 4.60%+
- --------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 54,677 $ 6,734 $ 2,591 $ 13,805 $ 10,766 $ 11,473 $ 8,927
- --------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets 0.35% 0.35% 0.33% 0.55% 0.55% 0.55% 0.55%+
- --------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 3.23% 3.46% 3.26% 1.86% 2.21% 3.36% 5.22%+
- --------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers And/Or
Expenses Reimbursed 0.67% 0.73% 0.69% 0.67% 0.76% 0.99% 0.81%+
- --------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers And/Or
Expenses Reimbursed 2.91% 3.08% 2.89% 1.74% 2.00% 2.92% 4.96%+
- --------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
Per Share Without
Waivers And/Or
Expenses Reimbursed $ 0.0291 $ 0.0309 $ 0.0270 $ 0.0176 $ 0.0192 $ 0.0285 $ 0.0455
</TABLE>
* Nations Municipal Reserves Liquidity Class Shares commenced operations on
June 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
9
<PAGE>
- --------------------------------------------------------------------------------
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
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.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
- --------------------------------------------------------------------------------
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the
10
<PAGE>
securities and other assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is 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."
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NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participators in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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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, U.S. Treasury 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."
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."
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General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the pay-
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ment of principal and interest on the guaranteed security and does not guarantee
the yield or value of that security or the yield or value of shares of that
Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
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.
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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if
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<PAGE>
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a money market fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
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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 may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for
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<PAGE>
a stated period of time. Any fees charged by selling and/or servicing agents to
their customers' accounts for automatic investment or other cash management
services will not be included in calculations of yield.
In addition to Liquidity Class Shares, the Funds offer Capital Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
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 Fund, if the Adviser believes the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of
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the average daily net assets of each Fund. For the services provided and the
expenses assumed pursuant to the Sub-Advisory Agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of .033% of the average daily net assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Liquidity Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees)
of the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an Advisory Fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury
Reserves -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the current Sub-Advisory Agreement, sub-advisory fees at the indicated
rates of the Funds' net assets: Nations Cash Reserves -- .033%; Nations
Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and Nations
Municipal Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves and
Nations Money Market Reserves. She has been Portfolio Manager for Nations Cash
Reserves since 1994 and Nations Money Market Reserves since its inception. Prior
to assuming her position with TradeStreet, she was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Sherman has worked in the investment community since 1981. Her past experience
includes investment research for William Lowry & Associates. Ms. Sherman
received a B.S. in Business
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Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Portfolios. For the services rendered pursuant to the Administration and Co-
Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government
Reserves -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Liquidity Class Shares of the Funds. See "Distribution And
Shareholder Servicing Plans."
NationsBank (collectively with The Bank of New York ("BONY") called
"Custodians") serves as Custodian for the assets of all Nations Funds except the
international portfolios. NationsBank is located at 1401 Elm Street, Dallas,
Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation. In
return for providing custodial services, the Custodian is entitled to receive,
in addition to out-of-pocket expenses, fees at the rate of (i) $300,000 per
annum, to be paid monthly in payments of $25,000 for custodian services for up
to and including 50 Funds;
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<PAGE>
and (ii) $6,000 per annum, to be paid in equal monthly payments, for custodian
services for each additional Fund above 50 Funds.
BONY has entered into an agreement with each of the Funds and NationsBank,
whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets of all
Nations Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out pocket expenses, fees at the rate of (i) 3/4 of one basis point
per annum on the aggregate net assets of all Nations' Non-Money Market Funds up
to $10 billion and (ii) 1/2 of one basis point on the excess, including all
Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Liquidity Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Liquidity Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Trust's fiscal year end is April 30. The Trust is a member of the
Nations Funds Family which consists of Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal Funds,
Inc. and the Trust. The Nations Funds Family currently has more than 60 distinct
investment portfolios and total assets in excess of $30 billion. 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 Trust's Nations Cash
Reserves, Nations Treasury Reserves, Nations Government Reserves, Nations
Municipal Reserves and Nations Money Market Reserves. NBAI is the investment
adviser and TradeStreet is the investment sub-adviser for each Fund.
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In addition to the Liquidity Class Shares, the Funds also offer the Capital
Class, the Adviser Class and the Market Class Shares. Capital Class Shares,
which do not bear distribution or shareholder servicing fees, are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $1,000,000
minimum initial investment requirement. The Adviser Class Shares are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $100,000
minimum initial investment requirement. The Adviser Class Shares also bear
shareholder servicing fees of up to .25% of the class's average net assets. The
Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for which they act in a
fiduciary, agency or custodial capacity and which meet the $250,000 minimum
initial investment for such shares. The Market Class Shares bear aggregate
distribution and shareholder servicing fees of up to .45% of the class's average
net assets. A salesperson and any other person or entity entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding the Capital Class, the Adviser Class and the Market
Class Shares of the Funds is contained in separate prospectuses that may be
obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
About Your Investment
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How To Buy Shares
Liquidity Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Liquidity Class Shares is $500,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent. A purchase
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order must be received by Stephens or the Transfer Agent by 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves). A
purchase order received after such time will not be accepted; notice thereof
will be given to the institution placing the order and any funds received will
be returned promptly to the sending institution. If Federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. The purchase
price is the net asset value per share next determined after acceptance of the
order by Stephens or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
for the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholders
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
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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 or the
Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A redemption will generally result in a gain or loss for Federal
income tax purposes.
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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.
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How To Exchange Shares
The exchange feature enables a shareholder of Liquidity Class Shares of a Fund
to acquire Liquidity Class Shares of another Fund when that shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange of
Liquidity Class Shares for Liquidity Class Shares of another Fund is made on the
basis of the next calculated net asset value per share of each Fund after the
exchange order is received.
The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Liquidity Class of Shares exchanged must have a current value of at least
$500,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
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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 of shares in the Funds 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 the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally
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is not exempt from state income taxation. Nations Cash Reserves, Nations
Government Reserves, 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 amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
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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 instru-
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mentality of the U.S. Government, though not necessarily by the U.S. Government
itself. Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves 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. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise
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might require the untimely disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial 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 which: (a) if rated by at least two NRSROs are rated in the
highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
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organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs, in registered
form, are designed for use in the U.S. securities markets. GDRs are designed for
use in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets.
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ADRs, ADSs, GDRs and EDRs also involve certain risks of other investments in
foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves and Nations Money Market Reserves may be subject to this
limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
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The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments
30
<PAGE>
are subject to each Fund's limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A
31
<PAGE>
risk associated with repurchase agreements is the failure of the seller to
repurchase the securities as agreed, which may cause a Fund to suffer a loss if
the market value of such securities declines before they can be liquidated on
the open market. Repurchase agreements with a duration of more than seven days
are considered illiquid securities and are subject to the limit stated above. A
Fund may enter into joint repurchase agreements jointly with other investment
portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves 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 the Fund to a proportional fractional interest in
payments received by a trust, either from the underlying securities owned by the
trust or pursuant to other arrangements entered into by the trust. A trust may
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Funds 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,
32
<PAGE>
state and local government issuers, and certain debt instruments issued by
domestic and foreign banks and corporations may carry variable or floating rates
of interest. Such instruments bear interest rates which are not fixed, but which
vary with changes in specified market rates or indices, such as a Federal
Reserve composite index. A variable-rate demand instrument is an obligation with
a variable or floating interest rate and an unconditional right of demand on the
part of the holder to receive payment of unpaid principal and accrued interest.
An instrument with a demand period exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
- --------------------------------------------------------------------------------
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
33
<PAGE>
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
34
<PAGE>
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the
likeli-
35
<PAGE>
hood of untimely payment of principal or interest over the term to maturity of
the rated instrument. The following are the three highest investment grade
ratings used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
36
<PAGE>
Prospectus Nations Cash
Reserves
Nations Institutional Reserves (formerly known as Nations Treasury
The Capitol Mutual Funds) (the "Trust") is an Reserves
open-end management investment company which seeks Nations Government
to provide a convenient and economical means of Rserves
investing in one or more professionally managed Nations Municipal
funds. The Trust's funds offer multiple classes of Reserves
shares; this Prospectus relates to the Capital Nations Money
Class Shares of the following diversified money Market Reserves
market funds (each, a "Fund" and collectively the
"Funds"): NATIONS CASH RESERVES, NATIONS TREASURY CAPITAL CLASS
RESERVES, NATIONS GOVERNMENT RESERVES, NATIONS SHARES
MUNICIPAL RESERVES AND NATIONS MONEY MARKET SEPTEMBER 1, 1997
RESERVES. AS SUPPLEMENTED
ON MAY 22, 1998
The Trust's Capital Class Shares are offered to
institutional investors that meet the $1,000,000
minimum initial investment requirement and to
NationsBank, N.A. ("NationsBank"), its affiliates
and correspondents, for the investment of their
own funds or funds for which they act in a
fiduciary, agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET
VALUE OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated May 22, 1998 for Nations
Money Market Reserves and dated September 1, 1997
for the remaining Funds has been filed with the
Securities and Exchange Commission ("SEC") and is
available without charge by writing or calling the
Trust at the address or telephone number indicated
in the column to the right. The SAI is incorporated
into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by
reference in this Prospectus and other information
regarding registrants that file electronically with
the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
SERVICES TO THE TRUST, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR
AND SERVES AS THE DISTRIBUTOR FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[NATIONS FUNDS LOGO APPEARS HERE]
CAPITAL 5/98
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds ---------------------------------------------------
Expenses Summary 4
---------------------------------------------------
Financial Highlights 6
---------------------------------------------------
Objectives 11
---------------------------------------------------
How Objectives Are Pursued 11
---------------------------------------------------
General Investment Policies 14
---------------------------------------------------
How Performance Is Shown 16
---------------------------------------------------
How The Funds Are Managed 17
---------------------------------------------------
Organization And History 20
---------------------------------------------------
About Your How To Buy Shares 21
Investment ---------------------------------------------------
How To Redeem Shares 22
---------------------------------------------------
How To Exchange Shares 23
---------------------------------------------------
How The Funds Value Their Shares 24
---------------------------------------------------
How Dividends And Distributions Are Made; Tax
Information 24
---------------------------------------------------
Appendix A -- Portfolio Securities 25
---------------------------------------------------
Appendix B -- Description Of Ratings 33
---------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
- --------------------------------------------------------------------------------
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) 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.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves, Nations Municipal Reserves and
Nations Money Market Reserves declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Capital Class
Shares is $1,000,000.
3
<PAGE>
- --------------------------------------------------------------------------------
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for the Capital Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable to
a hypothetical $1,000 investment in the Capital Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Money
Cash Treasury Government Municipal Market
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .14% .14% .14% .14% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Other Expenses (After Expense Waivers) .06% .06% .06% .06% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee and/or
Expense Waivers) .20% .20% .20% .20% .20%
</TABLE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in the
Capital Class Shares assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $2 $6 $11 $26
- -----------------------------------------------------------------------------------------------------------------------------
Nations Treasury Reserves $2 $6 $11 $26
- -----------------------------------------------------------------------------------------------------------------------------
Nations Government Reserves $2 $6 $11 $26
- -----------------------------------------------------------------------------------------------------------------------------
Nations Municipal Reserves $2 $6 $11 $26
- -----------------------------------------------------------------------------------------------------------------------------
Nations Money Market Reserves $2 $6 $11 $26
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist the investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts
4
<PAGE>
for the Funds' current fiscal year and reflect anticipated fee waivers and/or
reimbursements. Certain figures contained in the above tables are based on
amounts incurred during each Fund's most recent fiscal year and have been
adjusted as necessary to reflect current service provider fees and/or
reimbursements. There is no assurance that any fee waivers and/or reimbursements
will continue. In particular, to the extent other expenses are less than
expected, waivers and/or reimbursements of management fees, if any, may
decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
The information set forth in the foregoing table and examples relates only to
the Capital Class Shares. The Trust also offers the Liquidity Class, the Adviser
Class and the Market Class Shares of the Funds which are subject to the same
expenses plus additional distribution and/or shareholder servicing fees. For a
more complete description of the Funds' operating expenses, see "How The Funds
Are Managed."
Absent waivers, the "Advisory Fees", "Other Expenses" and "Total Operating
Expenses" for Nations Cash Reserves would be .30%, .15% and .45% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .15% and .45%
of average net assets, respectively; for Nations Government Reserves would be
.30%, .15% and .45% of average net assets, respectively; for Nations Municipal
Reserves would be .30%, .15% and .45% of average net assets, respectively; and
for Nations Money Market Reserves would be .30%, .19% and .49% of average net
assets, respectively.
5
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
The financial information on the following pages (except as set forth below) has
been derived from the audited financial statements of Nations Institutional
Reserves. Price Waterhouse LLP is the independent accountant to Nations
Institutional Reserves. The reports of Price Waterhouse LLP for the most recent
fiscal year of Nations Institutional Reserves accompany the financial statements
and are incorporated by reference in the SAI, which is available upon request.
Information for Nations Money Market Reserves Capital Class Shares has been
derived from the audited financial statements prepared by KPMG Peat Marwick LLP,
dated November 30, 1997, for the Shares of the Emerald Prime Advantage
Institutional Fund, the predecessor portfolio to Nations Money Market Reserves.
For more information see "Organization And History." Shareholders of the Funds
will receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
NATIONS CASH RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <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
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.0531 0.0570 0.0480 0.0283 0.0315 0.0492 0.0392
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends From Net
Investment Income (0.0531) (0.0570) (0.0480) (0.0283) (0.0315) (0.0492) (0.0392)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.44% 5.84% 4.91% 2.87% 3.19% 5.03% 7.35%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $1,684,233 $ 607,643 $ 134,064 $ 109,852 $ 55,739 $ 100,943 $ 19,387
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.29% 0.45% 0.45% 0.45% 0.45%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.32% 5.53% 4.96% 2.83% 3.15% 4.61% 7.04%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.45% 0.51% 0.52% 0.56% 0.59% 0.74% 0.79%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 5.07% 5.22% 4.73% 2.72% 3.01% 4.32% 6.70%+
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Per
Share Without Waivers $ 0.0506 $ 0.0538 $ 0.0458 $ 0.0272 $ 0.0298 $ 0.0455 $ 0.0373
</TABLE>
* Nations Cash Reserves Capital Class Shares commenced operations on October
10, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
6
<PAGE>
NATIONS TREASURY RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
<S> <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
- -----------------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment Income 0.0519 0.0556 0.0480 0.0298 0.0323 0.0481 0.0176
- -----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain On
Investments -- -- -- -- 0.0001 0.0003 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 0.0519 0.0556 0.0480 0.0298 0.0324 0.0484 0.0176
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends From Net
Investment Income (0.0519) (0.0556) (0.0480) (0.0298) (0.0323) (0.0481) (0.0176)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions From Net
Realized Gains -- -- -- -- (0.0001) (0.0003) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.0519) (0.0556) (0.0480) (0.0298) (0.0324) (0.0484) (0.0176)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.30% 5.71% 4.91% 3.02% 3.29% 4.92% 5.89%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $ 468,975 $ 304,342 $ 251,694 $ 338,504 $ 418,644 $ 19,587 $ 4,519
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.20% 0.20% 0.20% 0.26% 0.45%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.20% 5.50% 4.79% 2.99% 2.99% 4.39% 5.85%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers 0.46% 0.51% 0.50% 0.52% 0.72% 1.06% 0.94%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers 4.94% 5.19% 4.50% 2.67% 2.48% 3.59% 5.36%+
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Per
Share Without Waivers $ 0.0493 $ 0.0525 $ 0.0451 $ 0.0267 $ 0.0251 $ 0.0368 $ 0.0161
</TABLE>
* Nations Treasury Reserves Capital Class Shares commenced operations on
January 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
For a Capital Class YEAR YEAR YEAR YEAR YEAR YEAR
Share outstanding ENDED ENDED ENDED ENDED ENDED ENDED
throughout each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment Income 0.0520 0.0556 0.0463 0.0278 0.0312 0.0343
- -----------------------------------------------------------------------------------------------------------------------------
Net Realized Gain On
Investments -- -- -- -- -- 0.0023
- -----------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 0.0520 0.0556 0.0463 0.0278 0.0312 0.0366
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends From Net
Investment Income (0.0520) (0.0556) (0.0463) (0.0278) (0.0312) (0.0343)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions From Net
Realized Gains -- -- -- -- -- (0.0023)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.0520) (0.0556) (0.0463) (0.0278) (0.0312) (0.0366)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End Of
Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.33% 5.71% 4.72% 2.82% 3.15% 3.71%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 125,377 $ 58,121 $ 2 $ 10,819 $ 7,396 $ 1,800
- -----------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets 0.20%(a) 0.20% 0.32% 0.45% 0.45% 0.45%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.22% 5.48% 4.35% 2.78% 3.07% 4.24%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.49%(a) 0.53% 0.54% 0.51% 0.64% 0.76%
- -----------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 4.93% 5.15% 4.13% 2.72% 2.88% 3.93%
- -----------------------------------------------------------------------------------------------------------------------------
Net Investment Income
Per Share Without
Waivers $ 0.0491(a) $ 0.0523 $ 0.0439 $ 0.0272 $ 0.0288 $ 0.0313
<CAPTION>
-------------
<S> <C>
For a Capital Class PERIOD
Share outstanding ENDED
throughout each period: 04/30/91*
Net Asset Value,
Beginning Of Year $ 1.00
- -----------------------
Income From Investment
Operations:
Net Investment Income 0.0168
- -----------------------
Net Realized Gain On
Investments --
- -----------------------
Total From Investment
Operations 0.0168
- -----------------------
Less Distributions:
Dividends From Net
Investment Income (0.0168)
- -----------------------
Distributions From Net
Realized Gains --
- -----------------------
Total Distributions (0.0168)
- -----------------------
Net Asset Value, End Of
Year $ 1.00
- -----------------------
Total Return++ 5.57%+
- -----------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of Year
(000's) $ 295
- -----------------------
Ratio Of Operating
Expenses To Average
Net Assets 0.45%+
- -----------------------
Ratio Of Net Investment
Income To Average Net
Assets 5.89%+
- -----------------------
Ratio Of Operating
Expenses To Average
Net Assets Without
Waivers 0.80%+
- -----------------------
Ratio Of Net Investment
Income To Average Net
Assets Without
Waivers 5.54%+
- -----------------------
Net Investment Income
Per Share Without
Waivers $ 0.0158
</TABLE>
* Nations Government Reserves Capital Class Shares commenced operations on
January 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expenses ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
For a Capital Class Share YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
outstanding throughout ENDED ENDED ENDED ENDED ENDED ENDED ENDED
each period: 04/30/97 04/30/96 04/30/95 04/30/94 04/30/93 04/30/92 04/30/91*
Net Asset Value, Beginning
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 0.0337 0.0362 0.0313 0.0198 0.0231 0.0356 0.0245
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends From Net
Investment Income (0.0337) (0.0362) (0.0313) (0.0198) (0.0231) (0.0356) (0.0245)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End
Of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return++ 3.44% 3.70% 3.19% 2.00% 2.34% 3.62% 4.62%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios To Average Net
Assets/Supplemental
Data:
Net Assets, End Of
Year (000's) $ 59,701 $ 48,482 $ 32,353 $ 35,698 $ 26,145 $ 18,150 $ 5,064
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets 0.20% 0.20% 0.23% 0.45% 0.45% 0.45% 0.45%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets 3.38% 3.61% 3.36% 1.98% 2.27% 3.38% 4.70%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Operating
Expenses To Average Net
Assets Without Waivers
And/Or Expenses
Reimbursed 0.52% 0.58% 0.59% 0.58% 0.66% 0.89% 0.99%+
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio Of Net Investment
Income To Average Net
Assets Without Waivers
And/Or Expenses
Reimbursed 3.06% 3.23% 2.99% 1.85% 2.05% 2.94% 4.16%+
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income Per
Share Without Waivers
And/Or Expenses
Reimbursed $ 0.0305 $ 0.0324 $ 0.0279 $ 0.0186 $ 0.0203 $ 0.0296 $ 0.0216
</TABLE>
* Nations Municipal Reserves Capital Class Shares commenced operations on
October 23, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
9
<PAGE>
NATIONS MONEY MARKET RESERVES CAPITAL CLASS
<TABLE>
<CAPTION>
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
YEAR YEAR YEAR YEAR YEAR
For a Capital Class Share* outstanding ENDED ENDED ENDED ENDED ENDED
throughout each period: 11/30/97** 11/30/96 11/30/95 11/30/94 11/30/93
Net asset value, beginning of period $ 0.9999 $ 0.9999 $ 0.9999 $ 1.0000 $ 1.0017
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0545 0.0516 0.0561 0.0377 0.0304
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gains (losses) on securities -- -- -- (0.0038) 0.0005****
- -------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.0545 0.0516 0.0561 0.0339 0.0309
- -------------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions
Dividends from net investment income (0.0545) (0.0516) (0.0561) (0.0377) (0.0304)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains on
securities -- -- -- -- (0.0022)
- -------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.0545) (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 $ 0.9999 $ 1.0000
- -------------------------------------------------------------------------------------------------------------------------------
Total return 5.58% 5.29% 5.76% 3.83% 3.31%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $ 177,908 $ 133,044 $ 131,089 $ 131,758 $ 111,769
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.20% 0.35% 0.40% 0.40% 0.40%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets 5.45% 5.16% 5.60% 3.80% 3.03%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets*** 0.28% 0.35% 0.46% 0.44% 0.44%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets*** 5.37% 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.
** Effective December 1, 1996, Rodney Square Management Corporation no longer
serves as Sub-Adviser to the Fund.
*** During the period, certain fees were voluntarily reduced, reimbursed and/or
paid by third parties. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been as indicated.
During the period, the Fund received credits from its custodian for
interest earned on uninvested cash balances which were used to offset
custodian fees and expenses. The ratios were not affected.
**** 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.
10
<PAGE>
- --------------------------------------------------------------------------------
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
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.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
- --------------------------------------------------------------------------------
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the
11
<PAGE>
securities and other assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is 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."
12
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
13
<PAGE>
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, U.S. Treasury 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."
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."
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General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the pay-
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ment of principal and interest on the guaranteed security and does not guarantee
the yield or value of that security or the yield or value of shares of that
Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
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.
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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if
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unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a money market fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
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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 may advertise the "tax
equivalent yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized". That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for
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<PAGE>
a stated period of time. Any fees charged by selling and/or servicing agents to
their customers' accounts for automatic investment or other cash management
services will not be included in calculations of yield.
In addition to Capital Class Shares, the Funds offer Liquidity Class, Adviser
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees, and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's agent or by calling Nations Funds at the toll-free number indicated
on the cover of this Prospectus.
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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
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 Fund, if the Adviser believes the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of
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<PAGE>
the average daily net assets of each Fund. For the services provided and the
expenses assumed pursuant to the Sub-Advisory Agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of .033% of the average daily net assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Capital Class Shares of the Funds (as a percentage of average daily net assets)
to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an advisory fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury
Reserves -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after
waivers, NBAI paid TradeStreet under the current Sub-Advisory Agreement,
sub-advisory fees at the indicated rates of the Funds' net assets: Nations Cash
Reserves -- .033%; Nations Treasury Reserves -- .033%; Nations Government
Reserves -- .033%; and Nations Municipal Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves and
Nations Money Market Reserves. She has been Portfolio Manager for Nations Cash
Reserves since 1994 and Nations Money Market Reserves since its inception. Prior
to assuming her position with TradeStreet, she was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Sherman has worked in the investment community since 1981. Her past experience
includes investment research for William Lowry & Associates. Ms. Sherman
received a B.S. in Business Administration from the University of Texas at
Dallas.
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Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government
Reserves -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. No compensation is
paid to Stephens for distribution services for the Capital Class Shares.
NationsBank (collectively with The Bank of New York ("BONY"), called
"Custodians"), serves as Custodian for the assets of all Nations Funds except
the international portfolios. NationsBank is located at 1401 Elm Street, Dallas,
Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation. In
return for providing custodial services, the Custodian is entitled to receive,
in addition to out-of-pocket expenses, fees at the rate of (i) $300,000 per
annum, to be paid monthly in payments of $25,000 for custodian services for up
to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
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BONY has entered into an agreement with each of the Funds and NationsBank,
whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets of all
Nations Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess,
including all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Capital Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Capital Class Shares may bear certain class specific expenses. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Trust's fiscal year end is April 30. The Trust is a member of the
Nations Funds Family which consists of Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal Funds,
Inc. and the Trust. The Nations Funds Family currently has more than 60 distinct
investment portfolios and total assets in excess of $30 billion. 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 Capital Class Shares of the Trust's Nations Cash
Reserves, Nations Treasury Reserves, Nations Government Reserves, Nations
Municipal Reserves and Nations Money Market Reserves. NBAI is the investment
adviser and TradeStreet is the investment sub-adviser for each Fund.
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In addition to the Capital Class Shares, the Funds also offer the Liquidity
Class, the Adviser Class and the Market Class Shares. The Liquidity Class Shares
are offered to institutional investors which meet the $500,000 minimum initial
investment requirement and to NationsBank and its affiliates and correspondents,
for the investment of their own funds or funds for which they act in a
fiduciary, agency or custodial capacity. The Liquidity Class Shares of the Funds
bear aggregate distribution and shareholder servicing fees of up to 0.85% of the
class's average daily net assets. The Adviser Class Shares are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds which they act in
a fiduciary, agency or custodial capacity and which meet the $100,000 minimum
initial investment requirement. The Adviser Class Shares also bear shareholder
servicing fees of up to .25% of the class's average net assets. The Market Class
Shares are offered to institutional investors, including NationsBank, its
affiliates and correspondents, for which they act in a fiduciary, agency or
custodial capacity and which meet the $250,000 minimum initial investment for
such shares. The Market Class Shares bear aggregate distribution and shareholder
servicing fees of up to .45% of the class's average net assets. A salesperson
and any other person or entity entitled to receive compensation for selling or
servicing Fund shares may receive different compensation with respect to one
particular class of shares over another in a Fund. Information regarding the
Liquidity Class, Adviser Class and Market Class Shares of the Funds is contained
in separate prospectuses that may be obtained from the Trust's distributor. To
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
About Your Investment
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How To Buy Shares
Capital Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Capital Class Shares is $1,000,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day").
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Purchases will be effected only when Federal funds are available for investment
on the Business Day the purchase order is received by Stephens or the Transfer
Agent. A purchase order must be received by Stephens or the Transfer Agent by
3:00 p.m., Eastern time (12:00 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 or the Transfer Agent.
The agents are responsible for transmitting orders for purchases by their
customers and delivering acquired funds on a timely basis. Stephens is also
responsible for transmitting orders its receives to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholder
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
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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 or the
Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order
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by Stephens or the Transfer Agent. Redeemed shares are not entitled to dividends
declared on the day the redemption order is effective. A redemption will
generally result in a gain or loss for Federal income tax purposes.
The Trust may redeem an investor's account upon 30 day's written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an agent pursuant to
arrangements between the agent and its customers. The Trust also may redeem
shares of 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. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Capital Class Shares exchanged must have a current value of at least
$1,000,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be
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exchanged by mailing your request directly to the institution through which the
original shares were purchased.
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How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its 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 the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
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Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally is
not exempt from state income taxation. Nations Cash Reserves, Nations Government
Reserves, 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 amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
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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
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these assets may differ from other forms of debt securities, which normally
provide for periodic payment of interest in fixed amounts with principal paid at
maturity or specified call dates. Conversely, asset-backed securities provide
periodic payments which may consist of both interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves 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. Reverse
repurchase agreements may be con-
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sidered to be borrowings. The Funds may borrow money from banks for temporary
purposes in amounts of up to one-third of their respective total assets,
provided that borrowings in excess of 5% of the value of the Funds' total assets
must be repaid prior to the purchase of portfolio securities. Pursuant to line
of credit arrangements, certain of the Funds may borrow primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements 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 corpora-
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tions 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 which: (a) if rated by at least two NRSROs
are rated in the highest rating category for short-term debt obligations given
by such organizations, or if only rated by one such organization, are rated in
the highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent.
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Ownership of unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to
financial or other reports from the issuer, to which it would be entitled as the
owner of sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in
registered form, are designed for use in the U.S. securities markets. GDRs are
designed for use in both the U.S. and European securities markets. EDRs, in
bearer form, are designed for use in European securities markets. ADRs, ADSs,
GDRs and EDRs also involve certain risks of other investments in foreign
securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits 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, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap trans-
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<PAGE>
action on a net basis, I.E. the payment obligations of the Fund and the
counterparty will be netted out with the Fund receiving or paying, as the case
may be, only the net amount of the two payment obligations. A Fund will
segregate, on a daily basis, cash or liquid high quality debt securities with a
value at least equal to the Fund's net obligations, if any, under a swap
agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
uncondi-
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tional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money
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Market Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves 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 the Funds to a proportional fractional interest in
payments received by a trust, either from the underlying securities owned by the
trust or pursuant to other arrangements entered into by the trust. A trust may
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Funds 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.
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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.
33
<PAGE>
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
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:
34
<PAGE>
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related 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
35
<PAGE>
organization including, where applicable, holding company and operating
subsidiaries. BankWatch ratings do not constitute a recommendation to buy or
sell securities of any of these companies. Further, BankWatch does not suggest
specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
36
<PAGE>
Prospectus Nations Cash
Reserves
Nations Institutional Reserves (formerly known as Nations Treasury
The Capitol Mutual Funds) (the "Trust") is an Reserves
open-end management investment company which seeks Nations Government
to provide a convenient and economical means of Reserves
investing in one or more professionally managed Nations Municipal
funds. The Trust's funds offer multiple classes Reserves
Reserves of shares; this Prospectus relates to the Nations Money
Market Class Shares of the following diversified Market Reserves
money market funds (each, a "Fund" and
collectively the "Funds"): NATIONS CASH RESERVES, MARKET CLASS
NATIONS TREASURY RESERVES, NATIONS GOVERNMENT SHARES
RESERVES, NATIONS MUNICIPAL RESERVES AND NATIONS SEPTEMBER 1, 1997
MONEY MARKET RESERVES. AS SUPPLEMENTED
ON MAY 22, 1998
The Trust's Market Class Shares are offered to
institutional investors that meet the $250,000
minimum initial investment requirement and to
SHARES NationsBank, N.A. ("NationsBank"), its
affiliates and correspondents, for the investment
of their own funds or funds for which they act
in a fiduciary, agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE
OF $1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated May 22, 1998 for Nations
Money Market Reserves and dated September 1, 1997
for the remaining Funds has been filed with the
Securities and Exchange Commission ("SEC") and is
available without charge by writing or calling the
Trust at the address or telephone number indicated
in the column to the right. The SAI is incorporated
into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by
reference in this Prospectus and other information
regarding registrants that file electronically with
the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
SERVICES TO THE TRUST, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR
AND SERVES AS THE DISTRIBUTOR FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
[NATIONS FUNDS LOGO APPEARS HERE]
MARKET 5/98
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds ---------------------------------------------------
Expenses Summary 4
---------------------------------------------------
Financial Highlights 6
---------------------------------------------------
Objectives 10
---------------------------------------------------
How Objectives Are Pursued 10
---------------------------------------------------
General Investment Policies 13
---------------------------------------------------
How Performance Is Shown 15
---------------------------------------------------
How The Funds Are Managed 16
---------------------------------------------------
Organization And History 19
---------------------------------------------------
About Your How To Buy Shares 20
Investment ---------------------------------------------------
How To Redeem Shares 21
---------------------------------------------------
How To Exchange Shares 22
---------------------------------------------------
Distribution And Shareholder Servicing Plans 23
---------------------------------------------------
How The Funds Value Their Shares 24
---------------------------------------------------
How Dividends And Distributions Are Made; Tax
Information 24
---------------------------------------------------
Appendix A -- Portfolio Securities 26
---------------------------------------------------
Appendix B -- Description Of Ratings 33
---------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
- --------------------------------------------------------------------------------
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) 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.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves, Nations Municipal Reserves and
Nations Money Market Reserves declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Market Class Shares
is $250,000.
3
<PAGE>
- --------------------------------------------------------------------------------
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Market Class Shares of the
Funds. There are no transaction fees imposed upon the purchase, redemption or
exchange of shares. The Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in Market Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations Nations Nations
Cash Treasury Government Municipal Money Market
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .14% .14% .14% .14% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees (Absent Fee Waivers) .10% .10% .10% .10% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fees .25% .25% .25% .25% .25%
- -------------------------------------------------------------------------------------------------------------------------------
Other Expenses (After Expense Waivers) .06% .06% .06% .06% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee and/or
Expense Waivers) .55% .55% .55% .55% .55%
</TABLE>
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Market
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $6 $18 $31 $69
- -----------------------------------------------------------------------------------------------------------------------------
Nations Treasury Reserves $6 $18 $31 $69
- -----------------------------------------------------------------------------------------------------------------------------
Nations Government Reserves $6 $18 $31 $69
- -----------------------------------------------------------------------------------------------------------------------------
Nations Municipal Reserves $6 $18 $31 $69
- -----------------------------------------------------------------------------------------------------------------------------
Nations Money Market Reserves $6 $18 $31 $69
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above table are based on
estimated amounts for the Funds' current fiscal year. Except for Nations Money
Market Reserves, whose expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees and/or reimbursements. There is no assurance that any fee
waivers and/or reimbursements will continue. In particular, to the extent other
expenses are less than expected, waivers and/or reimbursements of management
fees, if any, may decrease. Shareholders will be notified of any decrease that
materially increases Total Operating Expenses. If current fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. The information set forth in the foregoing table and examples
relates only to the Market Class Shares. The Trust also offers the Capital
Class, Liquidity Class and Adviser Class Shares of the Funds. Long-term
shareholders in a Fund could pay more in sales charges than the economic
equivalent of the maximum front-end sales charges applicable to mutual funds
sold by members of the National Association of Securities Dealers, Inc. For a
more complete description of the Funds' operating expenses, see "How The Funds
Are Managed."
Absent waivers, the "Advisory Fees", "Rule 12b-1 Fees", "Other Expenses" and
"Total Operating Expenses" for Nations Cash Reserves would be .30%, .20%, .15%
and .90% of average net assets, respectively; for Nations Treasury Reserves
would be .30%, .20%, .15% and .90% of average net assets, respectively; for
Nations Government Reserves would be .30%, .20%, .15% and .90% of average net
assets, respectively; for Nations Municipal Reserves would be .30%, .20%, .15%
and .90% of average net assets, respectively; and for Nations Money Market
Reserves would be .30%, .20%, .19% and .94% of average net assets, respectively.
5
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. As of the date of this Prospectus, no
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.
For more information see "Organization And History." Shareholders of the Funds
will receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
NATIONS CASH RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
---------------
<S> <C>
Period
Ended
04/30/97*
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.0493
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0493)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Total Return++ 5.04%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 333,000
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.55%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.97%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.80%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.72%+
- --------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0468
</TABLE>
* Nations Cash Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
6
<PAGE>
NATIONS TREASURY RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
---------------
<S> <C>
Period
Ended
04/30/97*
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.0481
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0481)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Total Return++ 4.92%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 123,396
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.55%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.85%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.81%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.59%+
- --------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0455
</TABLE>
* Nations Treasury Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
----------------
<S> <C>
Period
Ended
04/30/97*
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.0482
- ---------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0482)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total Return++ 4.93%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 218,499
- ---------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.55%+(a)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.87%+
- ---------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.84%+(a)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.58%+
- ---------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0453(a)
</TABLE>
* Nations Government Reserves Market Class Shares commenced operations on May
3, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES MARKET CLASS
For a Market Class Share outstanding throughout the period:
<TABLE>
<CAPTION>
---------------
<S> <C>
Period
Ended
04/30/97*
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.0301
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0301)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00
- --------------------------------------------------------------------------------------------------------------------
Total Return++ 3.06%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 78,300
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.55%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.03%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.87%+
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 2.71%+
- --------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0269
</TABLE>
* Nations Municipal Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
9
<PAGE>
- --------------------------------------------------------------------------------
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
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.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
- --------------------------------------------------------------------------------
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligation issued
by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
10
<PAGE>
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in the
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A"
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is 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
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Columbia, and their political subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from regular Federal income tax ("Municipal
Securities"). At least 80% of the Fund's total assets will be invested in
securities the interest on which is exempt from Federal income taxes, based on
opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
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
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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, U.S. Treasury
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."
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."
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General Investment Policies
For a description of the Funds' permitted investments see "Appendix A" and for
further information about ratings see "Appendix B."
Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of
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fundamental policy and may not be changed with respect to a particular Fund
without the affirmative vote of the holders of a majority of that Fund's
outstanding shares. Other investment limitations that cannot be changed without
such a vote of shareholders are described in the Funds' SAI.
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.
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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a money
market fund may not at the time of acquisition invest more than 5% of
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its assets in securities of any one issuer except that up to 25% of total assets
may be invested in the first tier securities of a single issuer for three
business days. Additionally, (except for Nations Municipal Reserves) no more
than 5% of total assets may be invested, at the time of acquisition, in second
tier securities in the aggregate, and any investment in second tier securities
of one issuer is limited to the greater of 1% of total assets or one million
dollars. Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
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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 may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
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In addition to Market Class Shares, the Funds offer Liquidity Class, Adviser
Class and Capital Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
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 Fund, if the Adviser believes the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of the average daily net assets of each Fund.
For the services provided and the expenses assumed pursuant to the Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, com-
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<PAGE>
puted daily and paid monthly, at the annual rates of .033% of the average daily
net assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Market Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees) of
the Funds (as a percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the current Advisory Agreement, an advisory fee at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury
Reserves -- .13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the current Sub-Advisory Agreement, sub-advisory fees at the indicated
rates of the Funds' net assets: Nations Cash Reserves -- .033%; Nations
Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and Nations
Municipal Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves and
Nations Money Market Reserves. She has been Portfolio Manager for Nations Cash
Reserves since 1994 and Nations Money Market Reserves since its inception. Prior
to assuming her position with TradeStreet, she was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Sherman has worked in the investment community since 1981. Her past experience
includes investment research for William Lowry & Associates. Ms. Sherman
received a B.S. in Business Administration from the University of Texas at
Dallas.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that
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NationsBank and its affiliates may perform the services contemplated by the
Investment Advisory Agreements and this Prospectus without violation of the
Glass-Steagall Act. Such counsel has pointed out, however, that there are no
controlling judicial or administrative interpretations or decisions and that
future judicial or administrative interpretations of, or decisions relating to,
present federal or state statutes, including the Glass-Steagall Act, and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial or administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If such entity were prohibited from performing any such services, it
is expected that new agreements would be proposed or entered into with another
entity or entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government
Reserves -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Market Class Shares of the Funds. See "Distribution And Shareholder
Servicing Plans."
NationsBank (collectively with The Bank of New York ("BONY") called
"Custodians") serves as Custodian for the assets of all Nations Funds except the
international portfolios. NationsBank is located at 1401 Elm Street, Dallas,
Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation. In
return for providing custodial services, the Custodian is entitled to receive,
in addition to out-of-pocket expenses, fees at the rate of (i) $300,000 per
annum, to be paid monthly in payments of $25,000 for custodian services for up
to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
BONY has entered into an agreement with each of the Funds and Nations Bank,
whereby BONY
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will serve as sub-custodian ("Sub-Custodian") for the assets of all Nations
Funds except the international portfolios, for which BONY is already serving as
Custodian. BONY is located at 90 Washington Street, New York, New York 10286. In
return for providing sub-custodial services, BONY receives, in addition to out
of pocket expenses, fees at the rate of (i) 3/4 of one basis point per annum on
the aggregate net assets of all Nations' Non-Money Market Funds up to $10
billion and (ii) 1/2 of one basis point on the excess, including all Nations'
Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Market Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Market Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Trust's fiscal year end is April 30. The Trust is a member of the
Nations Funds Family which consists of Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal Funds,
Inc. and the Trust. The Nations Funds Family currently has more than 60 distinct
investment portfolios and total assets in excess of $30 billion. 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 Market Class Shares of the Trust's Nations Cash
Reserves, Nations Treasury Reserves, Nations Government Reserves, Nations
Municipal Reserves and Nations Money Market Reserves. NBAI is the investment
adviser and TradeStreet is the investment sub-adviser for each Fund.
In addition to the Market Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Adviser Class Shares. Capital Class Shares, which do
not bear distribution or
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shareholder servicing fees, are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity
and which meet the $1,000,000 minimum initial investment requirement. The
Liquidity Class Shares are offered to institutional investors which meet the
$500,000 minimum initial investment requirement and to NationsBank and its
affiliates and correspondents, for the investment of their own funds or funds
for which they act in a fiduciary, agency or custodial capacity. The Liquidity
Class Shares of the Funds bear aggregate distribution and shareholder servicing
fees of up to .85% of the class's average daily net assets. The Adviser Class
Shares are offered to institutional investors, including NationsBank, its
affiliates and correspondents, for the investment of their own funds or funds
for which they act in a fiduciary, agency or custodial capacity and which meet
the $100,000 minimum initial investment requirement. The Adviser Class Shares
also bear shareholder servicing fees of up to .25% of the class's average net
assets. A salesperson and any other person or entity entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding the Capital Class, the Liquidity Class and the
Adviser Class Shares of the Funds is contained in separate prospectuses that may
be obtained from the Trust's distributor. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
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
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How To Buy Shares
Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Market Class Shares is $250,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent (as defined
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below). A purchase order must be received by Stephens or the Transfer Agent by
3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Municipal Reserves). A purchase order received after such time will not be
accepted; notice thereof will be given to the institution placing the order and
any funds received will be returned promptly to the sending institution. If
Federal funds are not available by 4:00 p.m., Eastern time, the order will be
canceled. The purchase price is the net asset value per share next determined
after acceptance of the order by Stephens or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholder
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm 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 or the
Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A
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redemption will generally result in a gain or loss for Federal income tax
purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Market Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
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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. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Market Class Shares exchanged must have a value of at least $250,000.
Nations Funds and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
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Distribution And Shareholder
Servicing Plans
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan (the "Plan") with respect to the Market Class
Shares of each Fund. Pursuant to the Plan, each Fund may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Fund's Market Class Shares. Payments under the Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trust's
Board of Trustees, provided that the annual rate may not exceed .20% of the
average daily net asset value of each Fund's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Funds shall
be obligated to make any payments under the Plan that exceed the maximum amounts
payable under the Rules of Conduct of the National Association of Securities
Dealers, Inc. Certain state securities laws may require those financial
institutions providing distribution services to register as dealers pursuant to
state law.
The fees payable under the Plan are used primarily to compensate or reimburse
Stephens for distribution services provided by it, and related expenses
incurred, in connection with Market Class Shares, including payments by Stephens
to compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Sales Support Agreements with Stephens ("Selling
Agents"), for sales support services provided, and related expenses incurred, by
such 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
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services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the transfer agent; processing dividend and
distribution payments from the Funds on behalf of Customers; providing
information periodically to customers showing their position in Market Class
Shares; arranging for bank wires; and providing such other similar services as
may reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Market Class Shares.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Market Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with the
investment of their assets in Market Class Shares. Customers should read this
Prospectus in light of the terms governing their accounts with their Servicing
Agents.
Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
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How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its 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.
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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.
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Dividends are paid by each Fund in additional shares of the same class, unless
the shareholder has elected to take such payment in cash, on the first Business
Day of each month. Shareholders may change their election by providing written
notice to the Transfer Agent at least 15 days prior to the change.
The amount of dividends payable on the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund1s net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally is
not exempt from state 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 Reserves1 net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAI.
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The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves 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
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<PAGE>
issued by foreign branches of domestic banks ("Eurodollar" obligations) and
domestic branches of foreign banks ("Yankee dollar" obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, each of the Funds (except Nations Municipal
Reserves) may use reverse repurchase agreements for the purpose of investing the
proceeds in tri-party repurchase agreements. Generally, the effect of such a
transaction is that a Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of
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rights in the collateral or securities in the event the buyer of the securities
under the reverse repurchase agreement files for bankruptcy or becomes
insolvent. The Funds only enter into reverse repurchase agreements (and
repurchase agreements) with counterparties that are deemed by the Adviser to be
credit worthy. Reverse repurchase agreements are speculative techniques
involving leverage, and are subject to asset coverage requirements if a Fund
does not establish and maintain a segregated account (as described above). Under
the requirements of the 1940 Act, a Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, a Fund's asset coverage and other
factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interest of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial instruments
to instruments which: (a) if rated by at least two NRSROs are rated in the
highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade pat-
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terns. In addition, there may be less publicly available information about a
foreign company than about a U.S. company. Further, foreign securities markets
are generally not as developed or efficient as those in the U.S., and in most
foreign markets volume and liquidity are less than in the United States. Fixed
commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of the
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves and Nations Money Market Reserves may be subject to this
limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under
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the Securities Act of 1933, as amended (the "1933 Act") but that can be sold to
"qualified institutional buyers" in accordance with Rule 144A under the 1933
Act, or which were issued under Section 4(2) of the 1933 Act. Any such security
will not be considered illiquid so long as it is determined by a Fund's Board of
Trustees or the Adviser, acting under guidelines approved and monitored by such
Fund's Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Portfolio
holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or 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
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<PAGE>
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.
In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to Municipal Securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
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<PAGE>
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Fund's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves 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 the Funds to a proportional fractional interest in
payments received by a trust, either from the underlying securities owned by the
trust or pursuant to other arrangements entered into by the trust. A trust may
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Funds 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
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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.
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<PAGE>
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 unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
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<PAGE>
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related 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,
35
<PAGE>
will be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
36
<PAGE>
PROSPECTUS
Nations Institutional Reserves (formerly known as Nations Cash
The Capitol Mutual Funds) (the "Trust") is an open-end Reserves
management investment company which seeks to provide a Nations Treasury
convenient and economical means of investing in one Reserves
or more professionally managed funds. The Trust's Nations Government
funds offer multiple classes of shares; this Prospectus Reserves
relates to the Adviser Class Shares of the following Nations Municipal
diversified money market funds (each, a "Fund" and Reserves
collectively the "Funds"): NATIONS CASH RESERVES, Nations Money
NATIONS TREASURY RESERVES, NATIONS GOVERNMENT RESERVES, Market Reserves
NATIONS MUNICIPAL RESERVES AND NATIONS MONEY MARKET
RESERVES. ADVISER CLASS
SHARES
The Trust's Adviser Class Shares are offered to SEPTEMBER 1, 1997
institutional investors that meet the $100,000 AS SUPPLEMENTED
minimum initial investment requirement and to SHARES ON MAY 22, 1998
NationsBank, N.A. ("NationsBank"), its affiliates
and correspondents, for the investment of their own
funds or funds for which they act in a
fiduciary, agency or custodial capacity.
IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS
BEST EFFORTS TO MAINTAIN A CONSTANT NET ASSET VALUE OF
$1.00 PER SHARE.
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO
ASSURANCE THAT EACH FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Trust that a prospective
investor should know before investing. Investors
are advised to read this Prospectus and retain it
for future reference. A Statement of Additional
Information ("SAI") dated May 22, 1998 for Nations
Money Market Reserves and dated September 1, 1997
for the remaining Funds has been filed with the
Securities and Exchange Commission ("SEC") and is
available without charge by writing or calling the
Trust at the address or telephone number indicated
in the column to the right. The SAI is incorporated
into this Prospectus by reference. The SEC
maintains a Web site (http://www.sec.gov) that
contains the SAI, material incorporated by
reference in this Prospectus and other information
regarding registrants that file electronically with
the SEC. NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
investment sub-adviser to the Funds. As used herein
the term "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
SHARES OF THE TRUST ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK OR ANY OF ITS AFFILIATES. SUCH
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES CERTAIN RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
SERVICES TO THE TRUST, FOR WHICH THEY ARE
COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED
WITH NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR
AND SERVES AS THE DISTRIBUTOR FOR THE TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
For Fund information call:
1-800-626-2275
or write:
Nations Institutional
Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(NATIONS FUNDS LOGO APPEARS HERE)
67649 ADVISER 5/98
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Funds ---------------------------------------------------
Expenses Summary 4
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Financial Highlights 6
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Objectives 10
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How Objectives Are Pursued 10
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General Investment Policies 13
---------------------------------------------------
How Performance Is Shown 15
---------------------------------------------------
How The Funds Are Managed 16
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Organization And History 19
---------------------------------------------------
About Your How To Buy Shares 21
Investment ---------------------------------------------------
How To Redeem Shares 22
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How To Exchange Shares 22
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Shareholder Servicing Plan 23
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How The Funds Value Their Shares 24
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How Dividends And Distributions Are Made; Tax
Information 24
---------------------------------------------------
Appendix A -- Portfolio Securities 25
---------------------------------------------------
Appendix B -- Description Of Ratings 33
---------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
- --------------------------------------------------------------------------------
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Cash Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Treasury Reserves' investment objective is to preserve
principal value and maintain a high degree of liquidity while
providing current income.
(Bullet) Nations Government Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income.
(Bullet) Nations Municipal Reserves' investment objective is to
preserve principal value and maintain a high degree of
liquidity while providing current income exempt from Federal
income taxes.
(Bullet) 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.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 60
investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Cash Reserves, Nations Treasury
Reserves, Nations Government Reserves, Nations Municipal Reserves and
Nations Money Market Reserves declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: The minimum initial investment in Adviser Class
Shares is $100,000.
3
<PAGE>
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Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes operating expenses for Adviser Class Shares of the
Funds. There are no transaction fees imposed upon the purchase, redemption or
exchange of shares. The Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in Adviser Class Shares of the Funds over
specified periods.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Nations Nations Nations Money
Cash Treasury Government Municipal Market
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .14% .14% .14% .14% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Rule 12b-1 Fees (Shareholder Servicing
Fees) .25% .25% .25% .25% .25%
- -------------------------------------------------------------------------------------------------------------------------------
Other Expenses (After Expense Waivers) .06% .06% .06% .06% .10%
- -------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (After Fee and/or
Expense Waivers) .45% .45% .45% .45% .45%
</TABLE>
4
<PAGE>
EXAMPLES:
An investor would pay the following expenses on a $1,000 investment in Adviser
Class Shares of the indicated Fund assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $5 $14 $25 $57
- -----------------------------------------------------------------------------------------------------------------------------
Nations Treasury Reserves $5 $14 $25 $57
- -----------------------------------------------------------------------------------------------------------------------------
Nations Government Reserves $5 $14 $25 $57
- -----------------------------------------------------------------------------------------------------------------------------
Nations Municipal Reserves $5 $14 $25 $57
- -----------------------------------------------------------------------------------------------------------------------------
Nations Money Market Reserves $5 $14 $25 $57
</TABLE>
The examples should not be considered as a representation of past or future
expenses and actual expenses may be greater or less than those shown. The
purpose of this table is to assist an investor in understanding the various
costs and expenses that may be directly or indirectly borne by investors in the
Trust. The "Other Expenses" figures contained in the above tables are based on
estimated amounts for the Funds' current fiscal year and reflect anticipated fee
waivers and/or reimbursements. Except for Nations Money Market Reserves, whose
expenses are based on estimates, certain figures contained in the above tables
are based on amounts incurred during each Fund's most recent fiscal year and
have been adjusted as necessary to reflect current service provider fees and/or
reimbursements. There is no assurance that any fee waivers and/or reimbursements
will continue. In particular, to the extent other expenses are less than
expected, waivers and/or reimbursements of management fees, if any, may
decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If current fee waivers and/or reimbursements
are discontinued, the amounts contained in the "Examples" above may increase.
The information set forth in the foregoing table and examples relates only to
the Adviser Class Shares. The Trust also offers the Capital Class, Liquidity
Class and Market Class Shares of the Funds. For more complete descriptions of
the Funds' operating expenses, see "How The Funds Are Managed."
Absent waivers, the "Advisory Fees," "Other Expenses" and "Total Operating
Expenses" for Nations Cash Reserves would be .30%, .15% and .70% of average net
assets, respectively; for Nations Treasury Reserves would be .30%, .15% and .70%
of average net assets, respectively; for Nations Government Reserves would be
.30%, .15% and .70% of average net assets, respectively; for Nations Municipal
Reserves would be .30%, .15% and .70% of average net assets, respectively; and
for Nations Money Market Reserves would be .30%, .19% and .74% of average net
assets, respectively.
5
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
The financial information on the following pages has been derived from the
audited financial statements of Nations Institutional Reserves. Price Waterhouse
LLP is the independent accountant to Nations Institutional Reserves. The reports
of Price Waterhouse LLP for the most recent fiscal year of Nations Institutional
Reserves accompany the financial statements and are incorporated by reference in
the SAI, which is available upon request. As of the date of this Prospectus, no
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.
For more information see "Organization And History." Shareholders of the Funds
will receive unaudited semi-annual reports describing the Funds' investment
operations and annual financial statements audited by the Funds' independent
accountant.
NATIONS CASH RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
ADVISER CLASS SHARES: 04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.0506 0.0545 0.0316
- ---------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0506) (0.0545) (0.0316)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.19% 5.58% 3.20%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 247,551 $ 397,809 $ 47,682
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.45% 0.45% 0.54%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.07% 5.28% 4.71%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.70% 0.76% 0.77%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.82% 4.97% 4.48%+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0481 $ 0.0513 $ 0.0300
</TABLE>
* Nations Cash Reserves Adviser Class Shares commenced operations on September
22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
6
<PAGE>
NATIONS TREASURY RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.0494 0.0531 0.0308
- ---------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0494) (0.0531) (0.0308)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.06% 5.45% 3.11%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 154,256 $ 175,691 $ 55,762
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.45% 0.45% 0.45%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.95% 5.25% 4.54%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.71% 0.76% 0.75%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.69% 4.94% 4.25%+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0468 $ 0.0500 $ 0.0288
</TABLE>
* Nations Treasury Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
7
<PAGE>
NATIONS GOVERNMENT RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.0495 0.0527 0.0299
- ---------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0495) (0.0527) (0.0299)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return++ 5.07% 5.39% 3.04%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 24,845 $ 108,168 $ 99,246
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.45%(a) 0.45% 0.57%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.97% 5.23% 4.10%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers 0.74%(a) 0.78% 0.79%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers 4.68% 4.90% 3.88%+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers $ 0.0466(a) $ 0.0494 $ 0.0283
</TABLE>
* Nations Government Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and net investment income
per share was less than 0.01% and $0.01, respectively.
8
<PAGE>
NATIONS MUNICIPAL RESERVES ADVISER CLASS
For an Adviser Class Share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
04/30/97 04/30/96 04/30/95*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.0313 0.0337 0.0199
- ---------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.0313) (0.0337) (0.0199)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return++ 3.19% 3.43% 2.02%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 7,296 $ 55,511 $ 64,123
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets 0.45% 0.45% 0.48%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.13% 3.36% 3.11%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of operating expenses to average net assets without waivers and/or
expenses reimbursed 0.77% 0.83% 0.84%+
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without waivers
and/or expenses reimbursed 2.81% 2.98% 2.74%+
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income per share without waivers and/or expenses
reimbursed $ 0.0281 $ 0.0299 $ 0.0176
</TABLE>
* Nations Municipal Reserves Adviser Class Shares commenced operations on
September 22, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
9
<PAGE>
- --------------------------------------------------------------------------------
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS CASH RESERVES: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS TREASURY RESERVES: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.
NATIONS GOVERNMENT RESERVES: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.
NATIONS MUNICIPAL RESERVES: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.
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.
Although the Adviser seeks to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
- --------------------------------------------------------------------------------
How Objectives Are Pursued
NATIONS CASH RESERVES
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the
10
<PAGE>
securities and other assets owned by such issuers.
The Fund reserves the freedom to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment of
more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
NATIONS TREASURY RESERVES
In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that the Fund shall, under normal market conditions, invest
at least 65% of its total assets in U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government and repurchase
agreements secured by such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, and may invest in securities
issued by other investment companies, consistent with its investment objective
and policies.
The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").
Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
NATIONS GOVERNMENT RESERVES
In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
11
<PAGE>
NATIONS MUNICIPAL RESERVES
In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., having a long-term rating of "A" or higher from Duff & Phelps
Credit Rating Co. ("D&P"), Fitch Investors Service, Inc. ("Fitch"), S&P, IBCA
Limited or its affiliate IBCA Inc. (collectively, "IBCA"), Thomson BankWatch,
Inc. ("BankWatch") or Moody's in the case of certain bonds which are lacking a
short-term rating from the requisite number of nationally recognized statistical
rating organizations; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by the Trust's
Board of Trustees. The applicable Municipal Securities ratings are described in
"Appendix B".
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI. The non-governmental user of facilities financed by
private activity bonds also is considered to be an "issuer."
The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally
tax-exempt securities.
The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning the Fund's investments, see "Appendix A."
12
<PAGE>
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, U.S. Treasury 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."
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."
- --------------------------------------------------------------------------------
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-
13
<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.
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAI.
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.
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.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, (see "How The Funds Value
Their Shares"), investments must be in accordance with the requirements of Rule
2a-7 under the 1940 Act, some of which are described below. A money market fund
is limited to acquiring obligations with a remaining maturity of 397 days or
less, or obligations with greater maturities, provided such obligations are
subject to demand features or resets which are less than 397 days, and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar denominated
instruments determined to present minimal credit risks which, at the time of
acquisition, are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if
14
<PAGE>
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a money market fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Municipal Reserves) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
FUNDAMENTAL POLICIES: The investment objective of each Fund and the investment
limitations described above are fundamental policies of each Fund. It is also a
fundamental policy of each Fund to seek to maintain a constant net asset value
of $1.00 per share. There is no assurance that the Funds will be able to
maintain a constant net asset value of $1.00 per share.
Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.
- --------------------------------------------------------------------------------
How Performance Is Shown
From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELDS ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in the Fund over a stated seven-day period. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
The "tax-equivalent yield" of each class of shares in Nations Municipal Reserves
shows the level of taxable yield needed to produce an after-tax equivalent to
such class's tax-free yield. This is done by increasing the class's yield
(calculated as above) by the amount necessary to reflect the payment of the
Federal income tax at a stated tax rate. The tax-equivalent yield will always be
higher than the "yield" of a class of shares in Nations Municipal Reserves.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for
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a stated period of time. Any fees charged by selling and/or servicing agents to
their customers' accounts for automatic investment or other cash management
services will not be included in calculations of yield.
In addition to Adviser Class Shares, the Funds offer Liquidity Class, Capital
Class and Market Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below) or by calling Nations Funds at the toll-free
number indicated on the cover of this Prospectus.
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How The Funds Are Managed
The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.
The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
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 Fund, if the Adviser believes the quality of the
transaction and the commission are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to the Investment
Advisory Agreement, NBAI is entitled to a fee, calculated daily and paid
monthly, at an annual rate of .30% of
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the average daily net assets of each Fund. For the services provided and the
expenses assumed pursuant to the Sub-Advisory Agreement, NBAI will pay
TradeStreet sub-advisory fees, computed daily and paid monthly, at the annual
rates of .033% of the average daily net assets of each Fund.
NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the
Adviser Class Shares (exclusive of Rule 12b-1 fees) of the Funds (as a
percentage of average daily net assets) to .20%.
NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.
For the fiscal year ended April 30, 1997, after waivers, the Funds paid NBAI
under the Advisory Agreement, an Advisory Fee at the indicated rates of the
Funds' net assets: Nations Cash Reserves -- .14%; Nations Treasury Reserves --
.13%; Nations Government Reserves -- .10%; and Nations Municipal
Reserves -- .07%.
For the fiscal year ended April 30, 1997, after waivers, NBAI paid TradeStreet
under the Sub-Advisory Agreement, sub-advisory fees at the indicated rates of
the Funds' net assets: Nations Cash Reserves -- .033%; Nations Treasury
Reserves -- .033%; Nations Government Reserves -- .033%; and Nations Municipal
Reserves -- .033%.
Melinda Allen Crosby is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and is Senior Portfolio Manager for Nations Municipal
Reserves. She has been Portfolio Manager for Nations Municipal Reserves since
1994. Prior to assuming her position with TradeStreet, she was Vice President
and Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1973. Her past experience includes
consulting and municipal credit analysis for NationsBank Capital Markets. Ms.
Crosby received a B.A. in Business Administration from the University of North
Carolina at Charlotte and an M.B.A. from the McColl School of Business, Queens
College. She was a founding member and past president of the Southern Municipal
Finance Society and participated in the establishment of the National Federation
of Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Reserves and Nations Government
Reserves. She has been Portfolio Manager for the Funds since 1994. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Cash Reserves and
Nations Money Market Reserves. She has been Portfolio Manager for Nations Cash
Reserves since 1994 and Nations Money Market Reserves since its inception. Prior
to assuming her position with TradeStreet, she was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Ms.
Sherman has worked in the investment community since 1981. Her past experience
includes investment research for William Lowry & Associates. Ms. Sherman
received a B.S. in Business Administration from the University of Texas at
Dallas.
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Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such statutes, regulations and judicial or
administrative decisions or interpretations, could prevent such entities from
continuing to perform, in whole or in part, such services. If such entity were
prohibited from performing any such services, it is expected that new agreements
would be proposed or entered into with another entity or entities qualified to
perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc., with principal offices at 111 Center
Street, Little Rock, Arkansas 72201, serves as the administrator of the Trust
pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to a Co-Administration Agreement. Under the Co-Administration
Agreement, First Data provides various administrative and accounting services to
the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to .10% of each Fund's average daily net
assets.
For the fiscal year ended April 30, 1997, the Funds paid their administrator a
fee, after waivers, at the indicated rate of average net assets: Nations Cash
Reserves -- .01%; Nations Treasury Reserves -- .01%; Nations Government
Reserves -- .01%; and Nations Municipal Reserves -- .01%.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. No compensation is
paid to Stephens for distribution services for the Adviser Class Shares.
NationsBank (collectively with The Bank of New York ("BONY"), called
"Custodians") serves as Custodian for the assets of all Nations Funds except the
international portfolios. NationsBank is located at 1401 Elm Street, Dallas,
Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation. In
return for providing custodial services, the Custodian is entitled to receive,
in addition to out-of-pocket expenses, fees at the rate of (i) $300,000 per
annum, to be paid monthly in payments of $25,000 for custodian services for up
to and including 50 Funds; and (ii) $6,000 per annum, to be paid in equal
monthly payments, for custodian services for each additional Fund above 50
Funds.
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BONY has entered into an agreement with each of the Funds and NationsBank
whereby BONY will serve as sub-custodian ("Sub-Custodian") for the assets of all
Nations Funds except the international portfolios, for which BONY is already
serving as Custodian. BONY is located at 90 Washington Street, New York, New
York 10286. In return for providing sub-custodial services, BONY receives, in
addition to out of pocket expenses, fees at the rate of (i) 3/4 of one basis
point per annum on the aggregate net assets of all Nations' Non-Money Market
Funds up to $10 billion; and (ii) 1/2 of one basis point on the excess including
all Nations' Money Market Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as the independent accountant of the Trust. Their
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Adviser Class Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, Stephens and First Data; interest; Trustees' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or First Data under
their respective agreements with Nations Funds; and any extraordinary expenses.
Adviser Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Institutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.
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Organization And History
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds), is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Trust's fiscal year end is April 30. The Trust is a member of the
Nations Funds Family which consists of Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal Funds,
Inc. and the Trust. The Nations Funds Family currently has more than 60 distinct
investment portfolios and total assets in excess of $30 billion. 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 Adviser Class Shares of the Trust's Nations Cash
Reserves, Nations Treasury Reserves, Nations Government Reserves, Nations
Municipal Reserves and Nations Money Market Reserves. NBAI is the investment
adviser and
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TradeStreet is the investment sub-adviser for each Fund.
In addition to the Adviser Class Shares, the Funds also offer the Capital Class,
the Liquidity Class and the Market Class Shares. Capital Class Shares, which do
not bear distribution or shareholder servicing fees, are offered to
institutional investors, including NationsBank, its affiliates and
correspondents, for the investment of their own funds or funds for which they
act in a fiduciary, agency or custodial capacity and which meet the $1,000,000
minimum initial investment requirement. The Liquidity Class Shares are offered
to institutional investors which meet the $500,000 minimum initial investment
requirement and to NationsBank and its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. The Liquidity Class Shares of the Funds bear aggregate
distribution and shareholder servicing fees of up to .85% of the class's average
daily net assets. The Market Class Shares are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for which
they act in fiduciary, agency or custodial capacity and which meet the $250,000
minimum initial investment for such shares. The Market Class Shares bear
aggregate distribution and shareholder servicing fees of up to .45% of the
class's average net assets. A salesperson and any other person or entity
entitled to receive compensation for selling or servicing Fund shares may
receive different compensation with respect to one particular class of shares
over another in a Fund. Information regarding the Capital Class, the Liquidity
Class and the Market Class Shares of the Funds is contained in separate
prospectuses that may be obtained from the Trust's distributor. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.
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About Your Investment
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How To Buy Shares
Adviser Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Adviser Class Shares is $100,000.
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when Federal funds are available for investment on the Business
Day the purchase order is received by Stephens or the Transfer Agent. A purchase
order must be received by Stephens or the Transfer Agent by 3:00 p.m., Eastern
time (12:00 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 or the Transfer Agent.
The Agents (as defined below) are responsible for transmitting orders for
purchases by their Customers (as defined below) and delivering acquired funds on
a timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.
Stephens may, from time to time, at its expense, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. In addition, Stephens has
established a non-cash compensation program pursuant to which broker/dealers or
financial institutions that sell shares of the Funds may earn additional
compensation in the form of trips to sales seminars or vacation destinations,
tickets to sporting events, theater or other entertainment, opportunities to
participate in golf or other outings and gift certificates for meals or
merchandise. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
TELEPHONE TRANSACTIONS: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholders
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.
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How To Redeem Shares
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 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 or the
Transfer Agent after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with
respect to Nations Municipal Reserves), for execution on that Business Day. The
redemption price is the net asset value per share next determined after
acceptance of the redemption order by Stephens or the Transfer Agent. Redeemed
shares are not entitled to dividends declared on the day the redemption order is
effective. A redemption will generally result in a gain or loss for Federal
income tax purposes.
The Trust may redeem an investor's account upon 30 days' written notice if the
balance in the investors' account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an Agent pursuant to
arrangements between the Agent and its Customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Adviser Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
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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
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and deposited in the shareholder's account. An exchange will be treated for
Federal income tax purposes the same as a redemption of shares. However, the
ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within 90 days after the shares are
purchased.
The Adviser Class Shares exchanged must have a current value of at least
$100,000. Nations Funds and Stephens reserve the right to reject any exchange
request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.
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Shareholder Servicing Plan
The Trustees have approved a Shareholder Servicing Plan (the "Servicing Plan")
with respect to Adviser Class Shares of the Funds. Pursuant to the Servicing
Plan, the Trust, on behalf of each Fund, may enter into shareholder servicing
agreements ("Servicing Agreements") with banks, broker/dealers and other
financial institutions, including certain affiliates of NationsBank ("Servicing
Agents" also referred to as "Agents"). Under the Servicing Agreements, the
Servicing Agents will provide various shareholder support services to their
customers that are the owners of Adviser Class Shares ("Customers"), including
general shareholder liaison services; processing purchase, exchange and
redemption requests from Customers and placing orders with Stephens or the
Transfer Agent; processing dividend and distribution payments from the Funds on
behalf of Customers; providing sales information periodically to customers
showing their position in Adviser Class Shares; arranging for bank wires; and
providing such other similar services as may reasonably be requested.
The Servicing Plan authorizes the Trust to pay the Servicing Agents a fee,
calculated daily and paid monthly, at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Funds' Adviser Class Shares. The Servicing Plan
also provides that, to the extent any portion of the fees payable under the
Servicing Plan is deemed to be for services primarily intended to result in the
sale of Fund shares, such fees are deemed approved and may be paid under the
Servicing Plan. Accordingly, the Servicing Plan was approved and will be
operated pursuant to Rule 12b-1 under the 1940 Act.
The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Adviser Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with 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.
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How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its 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 the Capital Class Shares will be more than
the dividends payable on the Liquidity Class, the Adviser Class and the Market
Class Shares because of the distribution and/or shareholder servicing expenses
charged to such shares.
TAX INFORMATION: Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and taxable to the Fund's shareholders as long-term
capital gains. Under the Tax Relief Act of 1997, individual shareholders may be
taxed on such distributions at preferential rates. See "Taxes -- Capital Gain
Distributions" in the SAI. In general, distributions will be taxable when paid,
whether you take such distributions in cash or have them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by the following January will be
taxable as if they were paid by December 31.
Interest on U.S. Government Obligations is exempt from state income taxes when
such obligations are held directly. To the extent distributions of a Fund's net
investment income is attributable to interest on such obligations, such
distributions may also be exempt from state income taxes in the hands of
shareholders, provided certain conditions are satisfied. Interest received on
repurchase agreements collateralized by U.S. Government Obligations generally is
not exempt from state income taxation. Nations Cash Reserves, Nations Government
Reserves, Nations Treasury Reserves and Nations Money Market Reserves will
inform
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shareholders annually of the percentage of income and distributions derived from
their direct investments in U.S. Government Obligations. Shareholders should
consult their tax advisors to determine whether any portion of the dividends
received from a Fund is exempt from income tax in their particular states.
Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes long-term capital gains,
distributions to shareholders from such sources will be subject to Federal
income tax. See "Taxes -- Additional Considerations for Nations Municipal
Reserves" in the SAI. Distributions of net investment income by Nations
Municipal Reserves may be subject to state and local income taxes, even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations, which, if realized directly by shareholders, would be
exempt from such income taxes.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.
Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding. See
"Taxes -- Backup Withholding" in the SAIs.
The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your tax advisor with respect to your specific tax situation as
well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.
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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
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stripped mortgage-backed securities ("SMBS"), including interest-only and
principal-only SMBS. SMBS may be more volatile than other debt securities. For
additional information concerning mortgage-backed securities, see the SAI.
Non-mortgage-backed securities include interests in pools of receivables, such
as motor vehicle installment purchase obligations and credit card receivables.
Such securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in the underlying pools of
assets. Such securities also may be debt instruments, which are also known as
collateralized obligations and are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves 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. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements, certain of the Funds may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or bro-
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ker/dealer, in return for cash, and agrees to buy the security back at a future
date and price. Reverse repurchase agreements may be used to provide cash to
satisfy unusually heavy redemption requests without having to sell portfolio
securities, or for other temporary or emergency purposes. In addition, each of
the Funds (except Nations Municipal Reserves) may use reverse repurchase
agreements for the purpose of investing the proceeds in tri-party repurchase
agreements. Generally, the effect of such a transaction is that a Fund can
recover all or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while it will be able to
keep the interest income associated with those portfolio securities. Such
transactions are only advantageous if the interest cost to the Fund of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term
U.S. dollar-denominated obligations issued by domestic corporations or
foreign corporations and domestic and foreign commercial banks. Nations
Cash Reserves and Nations Money Market Reserves will limit purchases of
commercial instruments to instruments which: (a) if rated by at least
two NRSROs are rated in the highest rating category for short-term debt
obligations given by such organizations, or if only rated by one such
organization, are rated in the highest rating category for short-term
debt obligations given by such organization; or (b) if not rated, are
(i) comparable in priority and security to a class of short-term
instruments of the same issuer that has such rating(s), or (ii) of
comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.
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Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, distributions and disposition proceeds), possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
The Funds may invest indirectly in the securities of foreign issuers through
sponsored or unsponsored ADRs, ADSs, GDRs and EDRs or other securities
representing securities of companies based in countries other than the United
States. Transactions in these securities may not necessarily be settled in the
same currency as the underlying securities which they represent. Ownership of
unsponsored ADRs, ADSs, GDRs and EDRs may not entitle the Funds to financial or
other reports from the issuer, to which it would be entitled as the owner of
sponsored ADRs, ADSs, GDRs or EDRs. Generally, ADRs and ADSs in registered form,
are designed for use in the U.S. securities markets. GDRs are designed for use
in both the U.S. and European securities markets. EDRs, in bearer form, are
designed for use in European securities markets. ADRs, ADSs, GDRs and EDRs also
involve certain risks of other investments in foreign securities.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a
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"GIC") are investment instruments issued by highly rated insurance companies.
Pursuant to such contracts, a Fund may make cash contributions to a deposit fund
of the insurance company's general or separate accounts. The insurance company
then credits to a Fund guaranteed interest. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC generally becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and GICs
that do not provide for payment to a Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities. In addition, interests in privately arranged loans acquired by
Nations Cash Reserves and Nations Money Market Reserves may be subject to this
limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's
Board, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of inter-
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est on a notional principal amount from the party selling such interest rate
floor. The Adviser expects to enter into these transactions on behalf of a Fund
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities
the Fund anticipated purchasing at a later date rather than for speculative
purposes. A Fund will not sell interest rate caps or floors that it does not
own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: The two principal classifications of Municipal Securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed.
"Private activity bonds" held by a Fund are in most cases revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
Municipal Securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal Securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service. An
issuer's obligation to pay the principal of the note may be backed by an
unconditional bank letter or line of credit, guarantee, or commitment to lend.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments 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
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Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and
without intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
Municipal Securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Municipal Reserves may invest more
than 40% of its portfolio in securities with put or demand features guaranteed
by banks and other financial institutions. Accordingly, changes in the credit
quality of these institutions could cause losses to the Fund and affect its
share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent that more than 25% of a
Funds's total assets are invested in Municipal Securities that are payable from
the revenues of similar projects, a Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations' Non-Money Market
Funds may purchase shares of Nations' Money Market Funds.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered
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illiquid securities and are subject to the limit stated above. A Fund may enter
into joint repurchase agreements jointly with other investment portfolios of
Nations Funds.
SECURITIES LENDING: To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 33% of the value
of its total assets. Cash collateral received by a Nations Fund may be invested
in a Nations' Money Market Fund.
SHORT-TERM TRUST OBLIGATIONS: Nations Cash Reserves 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 the Funds to a proportional fractional interest in
payments received by a trust, either from the underlying securities owned by the
trust or pursuant to other arrangements entered into by the trust. A trust may
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by the Funds 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
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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
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elements may be present which suggest a susceptibility to impairment
sometime in the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample 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:
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SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
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
instru-
35
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ment. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
36
NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
NATIONS MONEY MARKET RESERVES
Capital, Adviser, Liquidity and Market Shares
May 22, 1998
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of
Nations Institutional Reserves (the "Trust") and should be read in conjunction
with the Trust's prospectuses dated May 22, 1998 (the "Prospectuses").
Prospectuses may be obtained through the Distributor, Stephens Inc., 111 Center
Street, Little Rock, Arkansas 72201.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
The Trust................................................................................................ 1
Description of Permitted Investments..................................................................... 1
The Adviser ............................................................................................. 9
The Administrator and Co-Administrator................................................................... 10
Counsel.................................................................................................. 11
Trustees and Officers.................................................................................... 11
Compensation Table....................................................................................... 19
Reporting................................................................................................ 20
Investment Limitations................................................................................... 20
Performance Information.................................................................................. 22
Purchase and Redemption of Shares........................................................................ 23
Distribution and Shareholder Servicing Plans............................................................. 24
Determination of Net Asset Value......................................................................... 28
Taxes.................................................................................................... 29
Fund Transactions........................................................................................ 32
Custodian and Transfer Agent............................................................................. 33
Description of Shares.................................................................................... 33
Shareholder Liability.................................................................................... 34
Limitation of Trustees' Liability........................................................................ 34
5% Shareholders.......................................................................................... 34
Experts and Financial Information........................................................................ 35
May 22, 1998
</TABLE>
<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 the Fund
represents an equal proportionate interest the Fund. See "Description of
Shares." This statement of additional information ("SAI") relates to the Trust's
Nations Money Market Reserves (the "Fund").
DESCRIPTION OF PERMITTED INVESTMENTS
Money Market Securities
Direct obligations of the U.S. Government consist of bills, notes and bonds
issued by the U.S. Treasury. Obligations issued by agencies of the U.S.
Government, while not direct obligations of the U.S. Government, are either
backed by the full faith and credit of the U.S. or are guaranteed by the U.S.
Treasury or supported by the issuing agency's right to borrow from the U.S.
Treasury.
The obligations of U.S. commercial banks constitute certificates of deposit,
time deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however time deposits cannot be traded in the secondary
market. Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are used by corporations to
finance the shipment and storage of goods and furnish dollar exchanges.
Maturities are generally six months or less.
Variable and Floating-Rate Instruments
The Fund may purchase variable-rate and floating-rate obligations as described
in the Prospectuses. If such instrument is not rated, the Adviser will consider
the earning power, cash flows, and other liquidity ratios of the issuers and
guarantors of such obligations. If the obligation is subject to a demand
feature, the Adviser will monitor its financial status to meet payment on
demand. In addition, the Fund will limit its 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 obligation's next
interest rate adjustment. Other
- --------
(1) More specifically, Nations Institutional Reserves is the name under which
The Capitol Mutual Funds conducts business.
(2) As discussed in the Prospectuses, the six nationally recognized statistical
rating organizations, or "NRSROs," are Duff & Phelps Credit Rating Co., Fitch
Investors Service, Inc., Standard & Poor's Corporation , IBCA Limited or its
affiliate IBCA Inc., Thomson BankWatch, Inc. and Moody's Investors Service, Inc.
1
<PAGE>
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time the
Fund can recover payment of principal as specified in the instrument. Variable-
or floating-rate instruments bear interest at a rate which varies with changes
in market rates.
Commercial Instruments
Commercial paper which may be purchased by the Fund includes variable-amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market rates
of interest pursuant to direct arrangements between the Trust, as lender, and
the borrower. Such notes provide that the interest rate on the amount
outstanding varies on a periodic basis (e.g. daily, weekly or monthly) depending
upon a stated short-term interest rate index. Both the lender and the borrower
may have the right to reduce the amount of outstanding indebtedness at any time.
There is no secondary market for the notes. It is not generally contemplated
that such instruments will be traded. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity. A
variable-amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The Adviser will monitor on an
ongoing basis the earnings power, cash flow, and liquidity ratios of the issuers
of such instruments and will similarly monitor the ability of an issuer of a
demand instrument to pay principal and interest on demand. In addition,
variable-amount master demand notes must meet the demand feature ratings and
notice requirements set forth above.
Asset-Backed Securities
Pursuant to its investment policies, the Fund may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies such as the
Government National Mortgage Association ("GNMA"), a wholly-owned U.S.
Government corporation which guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership interests in a pool of federally
insured mortgage loans. GNMA certificates represent ownership interests in
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly scheduled
payments of principal and interest. In addition, there may be unscheduled
principal payments representing prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when interest
rates decline, the value of a GNMA certificate likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition, these
prepayments can cause the price of a GNMA certificate originally purchased at a
premium to decline in price to its par value, which may result in a loss.
The Fund may invest in non-mortgage asset-backed securities. Non-mortgage
asset-backed securities include interests in pools of receivables, such as motor
vehicle installment purchase obligations and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
2
<PAGE>
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage-backed securities is at an early stage compared
to mortgage-backed securities. While the market for asset-backed securities is
becoming increasingly liquid, the market for mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities is not as
well developed. The Adviser to the Fund intends to limit its purchases of
mortgage-backed securities issued by certain private organizations and
non-mortgage-backed securities to securities that are readily marketable at the
time of purchase.
Securities Lending
To increase return on portfolio securities, the Fund may lend its portfolio
securities to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
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
3
<PAGE>
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. The Fund will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of the
cash collateral in U.S. government securities. However, the 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 the 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.
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., the 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 Fund 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 Fund, the Custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Fund 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
Fund may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
Repurchase agreements are a permissible investment for the Fund.
Reverse Repurchase Agreements
Reverse Repurchase Agreements are agreements by which a person (e.g., the Fund)
sells a portfolio security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to buy the security back at a future date and price.
At the time the Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below
4
<PAGE>
the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Fund's use
of 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. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Fund does not establish and maintain a segregated account
(as described above). In addition, some or all of the proceeds received by the
Fund from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the Investment Company Act of
1940, as amended (the "1940 Act"), the Fund is required to maintain an asset
coverage (including the proceeds of the borrowings) of at least 300% of all
borrowings. Depending on market conditions, the Fund's asset coverage and other
factors at the time of a reverse repurchase, the Fund may not establish a
segregated account when the Adviser believes it is not in the best interests of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Tax-Exempt Instruments
Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Fund can demand payment of the
obligation at all times or at stipulated dates on short notice (not to exceed 30
days) at par plus accrued interest. Such obligations are frequently secured by
letters of credit or other credit support arrangements provided by banks. The
quality of the underlying credit or of the bank, as the case may be, must, in
the Adviser's opinion be comparable to the long-term bond or commercial paper
ratings discussed in the Prospectuses. 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 Prospectuses, including municipal lease obligations and
participation interests in municipal securities (such as industrial development
bonds and municipal lease purchase payments).
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 Fund can simultaneously acquire the right to sell the securities back
to the seller, the issuer, or a third party (the "writer") at an agreed-upon
price at any time during a stated period or on a certain date. Such a right is
generally denoted as a "standby commitment" or a "put." The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is exercised. The Fund
will limit its put transactions to institutions which the Adviser believes
present minimum credit risks, and the Adviser will use its best efforts to
initially determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however, be difficult to
monitor the financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, the Fund would be a general creditor (i.e.,
on a parity with all other unsecured creditors) of the writer. Moreover,
particular provisions of the contract between the Fund and the writer may excuse
the writer from repurchasing the securities; for example, a change in the
published rating of the underlying securities or any similar event
5
<PAGE>
that has an adverse effect on the issuer's credit or a provision in the contract
that the put will not be exercised except in certain special cases, for example,
to maintain portfolio liquidity. Changes in the credit quality of banks and
other financial institutions guaranteeing puts (or similar securities supported
by credit and liquidity enhancements) could cause losses to the Fund and affect
its share price. The Fund could, however, at any time sell the underlying
portfolio security in the open market or wait until the portfolio security
matures, at which time it should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the security. The maturity of the
underlying security will generally be different from that of the put. There is
no limit to the percentage of portfolio securities that the Fund may purchase
subject to a put but the amount paid directly or indirectly for premiums on all
puts outstanding will not exceed 2% of the value of the total assets of the Fund
calculated immediately after any such put is acquired. For the purpose of
determining the "maturity" of securities purchased subject to an option to put,
and for the purpose of determining the average dollar-weighted maturity of the
Fund including such securities the Trust will consider "maturity" to be the
first date on which it has the right to demand payment from the writer of the
put although the final maturity of the security is later than such date.
Separately Traded Registered Interest and Principal Securities
The Fund 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 the Fund's
investment policy concerning investments in illiquid securities. Consistent with
Rule 2a-7 under the 1940 Act, the Adviser will only purchase STRIPS for the Fund
that have a remaining maturity of 397 days or less.
Municipal Securities
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Private activity
bonds held by the Fund are in most cases revenue securities and are not payable
from the unrestricted revenues of the issuer. Consequently, the credit quality
of private activity bonds is usually directly related to the credit standing of
the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable or floating-rate instruments issued by
industrial development authorities and other governmental entities. While there
may not be an active secondary market with
6
<PAGE>
respect to a particular instrument purchased by the Fund, the Fund may demand
payment of the principal and accrued interest on the instrument or may resell it
to a third party as specified in the instruments. The absence of an active
secondary market, however, could make it difficult for the Fund to dispose of
the instrument if the issuer defaulted on its payment obligation or during
periods the Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by
the Fund will be determined by the Adviser to be of comparable quality at the
time of purchase to instruments rated "high quality" by any major rating
service. Where necessary to ensure that an instrument is of comparable "high
quality," the 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 the 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 the 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 the 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 the Fund determines that a particular loan issue, unlike most such
loans, has a readily available market). As it deems appropriate, the Adviser
will establish procedures to monitor the credit standing of each such municipal
borrower, including its ability to meet contractual payment obligations.
Municipal securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.
In addition, the Fund 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 the Fund's
option specified Municipal Securities at a specified price. The Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
Although the Fund does not presently intend to do so on a regular basis, it may
invest more than 25% of its total assets in municipal securities 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 the Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, the Fund will be subject to the peculiar
risks presented by such projects to a
7
<PAGE>
greater extent than it would be if its assets were not so concentrated.
Foreign Securities
Nations Money Market Reserves may invest in U.S. dollar denominated obligations
of securities of foreign issuers. Portfolio investments may consist of
obligations of foreign branches of U.S. banks and of foreign banks, including
European Certificates of Deposit, European Time Deposits, Canadian Time Deposits
and Yankee Certificates of Deposits, and investments in Canadian Commercial
Paper, foreign securities and Europaper.
Restricted Securities
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act"),
absent an exemption from registration. Certain of the permitted investments of
the Fund 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 Fund 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.
When-Issued Purchases and Forward Commitments
The Fund 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.
The Fund 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 the 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.
8
<PAGE>
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 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.
Guaranteed Investment Contracts
Guaranteed Investment Contracts, investment contracts or funding agreements
(each referred to as a "GIC") are investment instruments issued by highly rated
insurance companies. Pursuant to such contracts, the Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits to the Fund guaranteed interest.
The insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The purchase price paid for a GIC generally becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
The Fund will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, the Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC may be
considered to be an illiquid investment.
The Fund 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. The Fund 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.
THE ADVISER
NationsBanc Advisors, Inc. ("NBAI") serves as investment adviser to the Fund,
pursuant to an Investment Advisory Agreement dated January 1, 1996, as amended
February 4, 1998. TradeStreet Investment Associates, Inc. ("TradeStreet") serves
as investment sub-adviser to the Fund of the Trust, pursuant to a 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.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, directors,
employees or agents, NBAI shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement shall become effective with respect to the
Fund if and when approved by the Trustees of the Trust, and if so approved,
shall thereafter continue from year to year, provided that such continuation of
the Agreement is specifically approved at least annually by (a) (i) the
9
<PAGE>
Trust's Board of Trustees or (ii) the vote of "a majority of the outstanding
voting securities" of the 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 amendment
to the Advisory and Sub-Advisory Agreements were 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 the Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet or any of its officers, directors,
employees or agents, TradeStreet shall not be subject to liability to NBAI or to
the Trust for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
The Sub-Advisory Agreement shall become effective with respect to the Fund as of
its execution date and, unless sooner terminated, shall continue in full force
and effect for one year, and may be continued with respect to the 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 the 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 the 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.
ADMINISTRATOR AND CO-ADMINISTRATOR
Stephens Inc. (the "Administrator") serves as administrator of the Trust and
First Data Investor Services Group, Inc. ("First Data or the
"Co-Administrator"), 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 the Fund.
Pursuant to the Administration Agreement, the Administrator has agreed to, among
other things, (i) maintain office facilities for the Fund, (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
10
<PAGE>
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 (the "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
Fund, (ii) compute the Fund's net asset value and net income, (iii) accumulate
information required for the Trust's reports to shareholders and the SEC, (iv)
prepare and file the Trust's federal and state tax returns, (v) perform monthly
compliance testing for the Trust, and (vi) prepare and furnish the Trust monthly
broker security transaction summaries and transaction listings and performance
information. The Co-Administrator bears all expenses incurred in connection with
the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Trust or its shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
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. The address of each, unless otherwise
indicated, is 111 Center Street, Little Rock, Arkansas 72201.
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Company Directorships
Edmund L. Benson, III, 60 Trustee Director, President and
Saunders & Benson, Inc. Treasurer, Saunders & Benson,
728 East Main Street Inc. (Insurance); Trustee,
Suite 400 Nations Institutional Reserves,
Richmond, VA 23219 Nations Fund Trust and Nations
Annuity Trust; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
James Ermer, 54 Trustee Senior Vice President- Finance,
13705 Hickory Nut Point CSX Corporation (transportation
Midlothian, VA 23112 and natural resources); Director,
National Mine Service; Director,
Lawyers Title Corporation;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust; Director,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
William H. Grigg, 64 Trustee Since June 1997, Chairman
Duke Power Co. Emeritus; June 1997 to April
422 South Church Street 1994, Chairman and Chief
PB04G Executive Officer; November 1991
Charlotte, NC 28242-0001 to April 1994, Vice Chairman,
Duke Power Co.; from April 1988
to November 1991, Executive Vice
President Customer Group, Duke
Power Co.; Director, Hatteras
Income Securities, Inc., Nations
Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Thomas F. Keller, 65 Trustee R.J. Reynolds Industries
Fuqua School of Business Professor of Business
Duke University Administration and Dean, Fuqua
Durham, NC 27706 School of Business, Duke
University; Director, LADD
Furniture, Inc.; Director,
Wendy's and Mentor Funds;
Director, Hatteras Income
Securities, Inc., Nations
Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
Carl E. Mundy, Jr., 62 Trustee Commandant, United States Marine
9308 Ludgate Drive Corps, from July 1991 to July
Alexandria, VA 23309 1995; Commanding General, Marine
Forces Atlantic, from June 1990
to June 1991; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust, and Nations
Annuity Trust.
James P. Sommers, 58* Trustee President, NationsBank Trust,
from January 1992 to September
1996; Executive Vice President,
NationsBank Corporation, from
January 1992 to May 1997;
Principal, Bainbridge &
Associates; Partner, Villa LLC;
Chairman, Central Piedmont
Community College Foundation;
Trustee, Central Piedmont
Community College; Board of
Commissioners,
Charlotte/Mecklenberg Hospital
Authority; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust and Nations
Annuity Trust.
A. Max Walker, 75* President, Trustee and Chairman Financial consultant; Formerly,
4580 Windsor Gate Court of the Board President, A. Max Walker, Inc.;
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Atlanta, GA 30342 Director and Chairman of the
Board, Hatteras Income
Securities, Inc., Nations
Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc.,
Nations Fund 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.
Charles B. Walker, 58 Trustee Since 1989, Director, Executive
Ethyl Corporation Vice President, Chief Financial
P.O . Box 2189 Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics,
Richmond, VA 23217 and aluminum manufacturing);
since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman,
Chief Financial Officer and
Treasurer, Albemarle Corporation,
Director, Nations Fund, Inc.
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional
Reserves, Nations Fund Trust and
Nations Annuity Trust.
Thomas S. Word, Jr., 59* Trustee Partner, McGuire Woods Battle &
McGuire, Woods, Battle Boothe (law); Director, Vaughan
& Boothe Bassett Furniture Company,
One James Center Director VB Williams Furniture
Richmond, VA 23219 Company, Inc.; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.; Trustee,
Nations Institutional Reserves,
Nations Fund Trust and Nations
Annuity Trust.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Richard H. Blank, Jr., 41 Secretary Since 1994, Vice President of
Stephens Inc. Mutual Fund Services, Stephens
Inc. 1990 to 1994, Manager Mutual
Fund Services, Stephens Inc. 1983
to 1990, Associate in Corporate
Finance Department, Stephens
Inc.; Secretary, Nations
Institutional Reserves, Nations
Fund Trust, Nations Annuity
Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
Nations LifeGoal Funds, Inc.
Michael W. Nolte, 36 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
Louise P. Newcomb, 44 Assistant Secretary Corporate Syndicate
Stephens Inc. Associate, Stephens Inc.
James E. Banks, 41 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
Corporate Counsel, Federated
Investors; from 1991 to 1993,
Staff Attorney, Securities and
Exchange Commission from 1988 to
1991
Richard H. Rose, 42 Treasurer Since 1994, Vice President,
First Data Investor Services Division Manager, First Data
Group, Inc. Investor Services Group, Inc.,
One Exchange Place since 1988, Senior Vice
Boston, MA 02109 President, The Boston Company
Advisors, Inc.; Treasurer,
Nations Institutional Reserves,
Nations Fund Trust, Nations
Annuity Trust, Nations Fund,
Inc., Nations Fund Portfolios,
Inc. and Nations LifeGoal Funds,
Inc.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Steven Levy, 32 Assistant Treasurer Since 1997, Vice President of
First Data Investor Services Fund Accounting, First Data
Group Inc. Investor Services Group, Inc.;
One Exchange Place prior to 1997, Investment
Boston, MA 02109 Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder, Stevens and
Clark, Inc.
</TABLE>
- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.
Mr. Rose serves as Treasurer to certain other investment companies for which
First Data or its affiliates serve as sponsor, distributor, administrator and/or
investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund
Trust and Nations Annuity Trust, separate registered investment companies that
are 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, Jr. 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 attendance at each other meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees.
Officers receive no direct remuneration in such capacity from the Trust. No
person who is an officer, director, or employee of NationsBank or its affiliates
serves as an officer, Trustee, or employee of the Trust. The Trustees and
officers of Nations Funds own less than 1% of the shares of the Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits each
access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by the Fund or (ii) was
being purchased or sold by the 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 the Fund.
16
<PAGE>
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 Fund
commencing on the first day of the calendar quarter coincident with or next
following his or her date of retirement equal to 5% of the aggregate Trustee's
fees payable by the Fund 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 Trust's 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 Trust's 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, generally in 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 the 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 the 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.
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPENSATION TABLE
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 $ 4,456.89 $10,339.65 $ 5,169.82 $ 80,792.84 50% Def'd
Trustee
James Ermer $ 7,210.49 $10,339.65 $ 5,169.82 $ 43,466.94
Trustee
William H. Grigg $ 0.00 $10,339.65 $ 5,169.82 $112,683.25 100% Def'd
Trustee
Thomas F. Keller $ 178.90 $10,339.65 $ 5,169.82 $121,325.75 100% Def'd
Trustee
A. Max Walker $10,611.99 $10,339.65 $ 5,169.82 $ 71,072.94
Chairman of the Board
Charles B. Walker $ 8,340.83 $10,339.65 $ 5,169.82 $ 47,988.33
Trustee
Thomas S. Word $417.01 $10,339.65 $ 5,169.82 $115,676.66 100% Def'd
Trustee
James P. Sommers 0 0 0 0
Trustee
Carl E. Mundy, Jr. $7,804.25 $10,339.65 $ 5,169.82 $ 48,842.00
--------- ---------- --------- ----------
Trustee
$39,020.35 $82,717.18 $41,358.59 $641,848.71
========== ========== ========== ===========
</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.
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from nine
investment companies, including the Trust, 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 five 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 ($55,652.78); William H. Grigg ($102,683.25); Thomas F. Keller
($110,610.14); and Thomas S. Word ($114,008.63).
18
<PAGE>
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
shareholder reports to shareholders of record.
INVESTMENT LIMITATIONS
Fundamental Investment Limitations:
The Fund 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.
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
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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 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 the Fund 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 "Investment Principles and Policies,"
securities subject to unconditional demand features acquired by the Fund 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,
the Fund 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
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rating category as determined by two NRSROs (or one NRSRO if the security is
rated by only one NRSRO).
PERFORMANCE INFORMATION
From time to time the Fund advertises its "current yield" and "effective
compound yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. The "yield" of the Fund refers to the
income generated by an investment in the 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 the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the Fund 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 Fund 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 the Fund 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.
Yields are one basis upon which investors may compare the Fund 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 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.
The 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
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Fund 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
Fund will normally be lower than the yield of the Capital Class Shares because
Liquidity Class, Adviser Class and Market Class Shares are subject to
distribution and/or shareholder servicing expenses not charged to Capital Class
Shares.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by the Distributor or the Transfer Agent. A
purchase order must be received by the Distributor or the Transfer Agent by 3:00
p.m., Eastern time. A purchase order received after such time will not be
accepted; notice thereof will be given to the institution placing the order and
any funds received will be returned promptly to the sending institution. If
federal funds are not available by the close of regular trading on the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern time), the order
will be canceled. The purchase price is the net asset value per share next
determined after acceptance of the order by the Distributor or the Transfer
Agent.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time, 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 the Fund. Redemption orders will not be accepted by the
Distributor or the Transfer Agent after 3:00 p.m., Eastern time for execution on
that Business Day. The redemption price is the net asset value per share next
determined after acceptance of the redemption order by the Distributor or the
Transfer Agent.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of the Fund next
determined after receipt by the Distributor of the redemption order.
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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 the 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 Fund 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 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 the 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 the Qualified Trustees. The budget will be in an amount not
to exceed .30% of the average daily net assets of Liquidity Class Shares of the
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
the Fund 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 the 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 Fund (the "Liquidity Class Servicing
Plan" or the "Servicing Plan"). Pursuant to the Servicing Plan, the 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
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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 .25% of the average daily
net asset value of the Liquidity Class Shares of the 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 Fund
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor and/or the Trust under the
Liquidity Class Plans which exceed the total of the payments made to the Selling
Agents and/or Servicing Agents by the Distributor or the Trust and reimbursed by
the Fund 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 the 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.
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 Fund 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 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.
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Pursuant to the Distribution Plan, the Fund may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of the Fund's Market Class Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Market Class Shares with
the Distributor ("Selling Agents"). Payments under the 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 .20%
of the average daily net asset value of the 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 Fund (the "Market Class Servicing Plan" or
the Servicing Plan"). Pursuant to the Servicing Plan, the 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 .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
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containing any proposals regarding the Servicing Plan or related agreements; (x)
providing general shareholder liaison services; and (xi) providing such other
similar services as the Trust may reasonably request to the extent such
Servicing Agents are permitted to do so under applicable statutes, rules or
regulations.
The shareholder servicing plan with respect to the Market Class Distribution
Plan and the Market Class Servicing Plan (collectively, the "Plans") will
continue in effect only so long as such continuance is approved at least
annually by (i) a majority of the Board of Trustees, and (ii) a majority of the
Qualified Trustees, pursuant to a vote cast in person at a meeting called for
the purpose of voting on the Plan. Each Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Shares of the Fund. All material amendments to a
Plan require the approval of a majority of the Board of Trustees and the
Qualified Trustees. The Plans require that quarterly written reports of the
amounts spent under the Plans and the purposes of such expenditures be furnished
to, and reviewed by, the Trustees.
Adviser Class
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a Shareholder
Servicing Plan for the Adviser Class Shares of the 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 Fund. The Adviser Class Servicing
Plan permits the Trust to pay Servicing Agents a fee not exceeding .25% of the
average daily net asset value of the Adviser Class Shares beneficially owned by
the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the Adviser
Class Servicing Plan may include: (i) aggregating and processing purchase and
redemption requests for such Adviser Class Shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in such Adviser Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Trust on behalf of customers; (iv) providing information periodically
to customers showing their positions in such Adviser Class Shares; (v) arranging
for bank wires; (vi) responding to customers' inquiries concerning their
investment in such Adviser Class Shares; (vii) providing sub-accounting with
respect to such Adviser Class Shares beneficially owned by customers or the
information necessary for sub-accounting; (viii) if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (ix) forwarding to customers proxy statements and proxies containing
any proposals regarding the Adviser Class Servicing Plan or related agreements;
(x) general shareholder liaison services; and (xi) providing such other similar
services as the Trust reasonably request to the extent the Servicing Agents are
permitted to do so under applicable statutes, rules or regulations.
The Adviser Class Servicing Plan also provides that to the extent any portion of
the fees payable under such Plan is deemed to be for services primarily intended
to result in the sale of Fund shares, such fees are deemed approved and may be
paid pursuant to the Servicing Plan and in accordance with Rule 12b-1 under the
1940 Act.
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
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<PAGE>
which may be spent thereunder without approval of a majority of the outstanding
Adviser Class Shares of the 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 Fund will be determined as of 3:00 p.m.,
Eastern time, on each day the Exchange is open for business.
Net asset value per share of the Fund is calculated by adding the value of its
securities and other assets, subtracting its liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method pursuant to Rule 2a-7 under the 1940 Act, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by this
method, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of the
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 the Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the 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 the Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The Fund's use of amortized cost and the maintenance of the Fund's 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 Fund 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 Fund. Such procedures include the
determination of the extent of deviation, if any, of the Fund's current net
asset value per share calculated using available market quotations from the
Fund's 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 Fund incurs a significant loss
or liability, the Trustees have the authority to reduce pro rata the number of
shares of the Fund 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.
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TAXES
The following information supplements and should be read in conjunction with
Prospectus section entitled "Tax Information." The Prospectuses of the Fund
describe generally the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning income taxes.
In General
The Trust intends to qualify the 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.
The Fund will be treated as a separate entity for tax purposes and thus the
provisions of the Code applicable to regulated investment companies will
generally be applied to the 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 the Fund. As a regulated investment company, the
Fund will not be taxed on net investment income and capital gains distributed to
its shareholders.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) the 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 Fund must also distribute or be deemed to distribute to their shareholders
at least 90% of their net investment income earned in each taxable year. In
general, these distributions must actually or be deemed to be made in the
taxable year. However, in certain circumstances, such distributions may be made
in the 12 months following the taxable year. The Fund intends to pay out
substantially all of its net investment income and net realized capital gains
(if any) for each year.
Excise Tax
A 4% nondeductible excise tax will be imposed on the 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. The 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
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Except as provided herein, gains and losses on the sale of portfolio securities
by the 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.
Capital Gain Distributions
Distributions which are designated by the Fund as capital gain distributions
will be taxed to shareholders as long-term term capital gains (to the extent
such dividends do not exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to the shareholders not later than 60 days after the
close of the Fund's taxable year.
With respect to shareholders who are individuals, trusts or estates, the
Taxpayer Relief Act of 1997 (the "Act") reduces the maximum tax rate on net
capital gains derived from securities held for more than 18 months to 20% and
provides a maximum tax rate on net capital gains derived from securities held
for more than one year and for not more than 18 months ("mid-term gains") of
28%. A maximum 18% rate will ultimately be available to individuals, trusts and
estates for net gain on the disposition of certain securities held more than 5
years upon their disposition. The Treasury Department is authorized to issue
regulations for application of the reduced rates to pass-through entities,
including regulated investment companies. Shareholders who are individuals,
trusts or estates may therefore qualify for the reduced rate of tax on capital
gain distributions paid by the Fund to the extent such distributions are
attributable to the Fund's dispositions after May 7, 1997.
Net gain recognized on securities held for one year or less in excess of net
long-term capital loss continues to be short-term capital gain subject to tax at
ordinary income rates, and the Act generally does not affect the taxation of
capital gains to corporations.
Other Distributions
Although dividends of net investment income will be declared daily based on the
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 the 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 the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.
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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 the Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. In addition, if a shareholder receives a
designated capital gain distribution (to be treated by the shareholder as a
long-term capital gain) with respect to any Fund share and such Fund share is
held for six months or less, then (unless otherwise disallowed) any loss on the
sale or exchange of that Fund share will be treated as a long-term capital loss
to the extent of the designated capital gain distribution. The foregoing
recharacterization and disallowance rules do not apply to losses realized under
a periodic redemption plan.
Federal Income Tax Rates
As of the printing of this SAI, the maximum individual tax rate applicable to
ordinary income is 39.6% (marginal tax rates may be higher for some individuals
to reduce or eliminate the benefit of exemptions and deductions); the maximum
individual marginal tax rate applicable to net capital gains is 28% (however,
see "Capital Gain Distributions" above); and the maximum corporate tax rate
applicable to ordinary income and net capital gains is 35% (marginal tax rates
may be higher for some corporations to reduce or eliminate the benefit of lower
marginal income tax rates). Naturally, the amount of tax payable by an
individual or corporation will be affected by a combination of tax laws
covering, for example, deductions, credits, deferrals, exemptions, sources of
income and other matters.
Foreign Shareholders
Under the Code, distributions of net investment income by the Fund to a
nonresident alien individual, foreign trust (i.e., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. fiduciaries have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to Federal withholding tax (at a rate of 30% or,
if an income tax treaty applies, at the lower treaty rate, if any). Such tax
withheld is generally not refundable. Withholding will not apply if a dividend
paid by the Fund to a foreign shareholder is "effectively connected" with a U.S.
trade or business (or, if an income tax treaty applies, is attributable to a
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U.S. permanent establishment of the foreign shareholder), in which case the
reporting and withholding requirements applicable to U.S. persons will apply.
Distributions of net long-term capital gains are generally not subject to tax
withholding applicable to foreign shareholders.
Backup Withholding
The Trust may be required to withhold, subject to certain exemptions, at a rate
of 31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless a shareholder
certifies that the Taxpayer Identification Number ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is 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.
Other Matters
Investors should be aware that the investments to be made by the Fund may
involve sophisticated tax rules that may result in income or gain recognition by
the Fund without corresponding current cash receipts. Although the Fund will
seek to avoid significant noncash income, such noncash income could be
recognized by the Fund, in which case the Fund may distribute cash derived from
other sources in order to meet the minimum distribution requirements described
above.
The foregoing discussion and the discussions in the Prospectuses applicable to
each shareholder address only some of the federal tax considerations generally
affecting investments in the Fund. Each investor is urged to consult his or her
tax advisor regarding specific questions as to federal, state, local or foreign
taxes.
FUND TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, the Adviser is responsible for placing the orders
to execute transactions for the Fund. 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.
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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 Fund 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.
CUSTODIAN AND TRANSFER AGENT
NationsBank of Texas, N.A., serves as custodian ("Custodian") for the securities
and cash of the Fund. As custodian, NationsBank of Texas, N.A., maintains
custody of the Fund's 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 Fund for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Fund all
checks, and receives all dividends and other distributions made on securities
owned by the Fund. For such services, NationsBank of Texas, N.A., is entitled to
receive, in addition to out-of-pocket expenses, fees, payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of the Fund's investments,
(ii) $10.00 per repurchase collateral transaction by the Fund, and (iii) $15.00
per purchase, sale and maturity transaction involving the Fund. NationsBank of
Texas, N.A. is a wholly owned subsidiary of NationsBank Corporation.
The Bank of New York, 90 Washington Street, New York, New York 10286 serves as
sub-custodian for the portfolio securities and cash of all the Fund.
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Fund. Under the transfer agency agreement, the
transfer agent maintains the shareholder account records for the Trust, handles
certain communications between shareholders and the Trust, and distributes
dividends and distributions payable by the Trust to shareholders, and produces
statements with respect to account activity for the Trust and its shareholders
for these services.
NationsBank of Texas, N.A. serves as sub-transfer agent for the Fund.
DESCRIPTION OF SHARES
The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of shares of the Fund and different classes of the Fund. The Fund
currently offers Capital Class Shares, Liquidity Class Shares, Adviser Class
Shares and Market Class Shares. Except for differences between classes of the
Fund pertaining to distribution arrangements, each share of the Fund represents
an equal proportionate interest in the Fund with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the Fund.
Shareholders have no preemptive rights. The Agreement and Declaration of Trust
provides that
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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 the Fund and
would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
The Fund or each class of the Fund will vote separately on matters pertaining
solely to such Fund or class. Such matters include matters relating to the
Fund's investment advisory agreement or a class' distribution plan. The Fund
will vote as a whole on matters affecting the Funds such as the election of
Trustees and the appointment of the Trust's independent accountant.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the Shareholders' incurring financial loss for that reason
appears remote because the Trust's 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 the Fund. Information is given as of May 22, 1998.
Percentage of Shares
Name and Address Held of Record Only
- ---------------- -------------------
None None
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EXPERTS AND FINANCIAL INFORMATION
The Board of Trustees has selected Price Waterhouse LLP, with offices at 160
Federal Street, Boston, MA 02110, to serve as independent accountant to Nations
Institutional Reserves. Certain financial information which appears in the
Prospectuses and the financial statements has been audited by the accountants.
The Annual Report for the fiscal year ended April 30, 1997, is hereby
incorporated by reference in this SAI. The Annual Report will be sent free of
charge with this SAI to any shareholder who requests this SAI.
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