NATIONS INSTITUTIONAL RESERVES, 485APOS, 1998-11-25

NATIONS INSTITUTIONAL RESERVES
485APOS, 1998-11-25

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As filed with the Securities and Exchange Commission
on November 25, 1998
Registration No. 33-33144; 811-6030

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

Post-Effective Amendment No. 23 [X]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

Amendment No. 24 [X]

(Check appropriate box or boxes)
------------------------
THE CAPITOL MUTUAL FUNDS
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022

It is proposed that this filing will become effective (check appropriate box):

[ ] Immediately upon filing pursuant to Rule 485(b); or [ ] on (date) pursuant
to Rule 485(b), or

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

[ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to
paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

EXPLANATORY NOTE

This Post-Effective Amendment No. 23 to the Registration Statement
of The Capitol Mutual Funds (d/b/a/ Nations Institutional Reserves) (the
"Trust") is provided in order to register four new shell classes to the
five portfolios.

Part B filed pursuant to Rule 485(b) in Post-Effective Amendment
No. 22, dated August 27, 1998, is incorporated by reference herein.

<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
PART A
Item No. Prospectus
- -------- ----------

1. Cover Page................................... Cover Page

2. Synopsis..................................... Expenses Summary

3. Condensed Financial Information.............. Financial Highlights; How
Performance Is Shown

4. General Description of Registrant.......... Cover Page; Objectives;
How Objectives Are
Pursued; Organization And
History

5. Management of the Fund....................... How The Funds Are Managed

5A. Management's Discussion of Fund Performance *

6. Capital Stock and Other Securities........... How To Buy Shares; How
The Funds Value Their
Shares; How Dividends And
Distributions Are Made;
Tax Information

7. Purchase of Securities Being Offered......... Cover Page; How To Buy
Shares

8. Redemption or Repurchase..................... How To Redeem Shares; How
To Exchange Shares

9. Legal Proceedings............................ Organization And History

PART B Item No.
--------

10. Cover Page................................... Cover Page

1
<PAGE>

* Not Applicable
11. Table of Contents........................... Table of Contents

12. General Information and History............. The Trust

13. Investment Objectives and Policies.......... Description of Permitted
Investments; Investment
Limitations; Securities
Lending

14. Management of the Registrant................ Trustees and Officers

15. Control Persons and Principal Holders of
Securities............................... 5% Shareholders

16. Investment Advisory and Other Services...... The Adviser; The
Administrator and
Co-Administrator;
Distribution and
Shareholder Servicing
Plans; and Custodian and
Transfer Agent

17. Brokerage Allocation ....................... Portfolio Transactions

18. Capital Stock and Other Securities.......... Description of Shares

19. Purchase, Redemption and Pricing of Securities
being Offered............................ Net Asset-Value --
Purchases and
Redemptions; Distributor

20. Tax Status.................................. Taxes

19. Underwriters................................ Distribution and
Shareholder Servicing
Plans

20. Calculation of Performance Data............. Performance Information

21. Financial Statements........................ Experts and Financial
Information
</TABLE>

2
<PAGE>

PART C Item No.
---------------

Information required to be in Part C is set forth under the appropriate Item,
so numbered, in Part C of this document.

3
<PAGE>

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

PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED NOVEMBER , 1998

Prospectus

Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Daily Class Shares of the following diversified money
market funds (each, a "Fund" and collectively the "Funds"): NATIONS CASH
RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY RESERVES, NATIONS
GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.

The Trust's Daily Class Shares are offered to Retail investors that meet the
$1,000 minimum initial investment requirement and to NationsBank, N.A.
("NationsBank"), its affiliates and correspondents, for the investment of their
own funds or funds for which they act in a fiduciary, agency or custodial
capacity.

IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.

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

This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Daily Class Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI"), that has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by writing or
calling the Trust at the address or telephone number shown below. The SAI for
the Trust, dated September 1, 1998, is incorporated by reference in its entirety
into this Prospectus. The SEC maintains a Web site (http:// www.sec.gov) that
contains the SAI, material incorporated by reference in this Prospectus and
other information regarding registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment
sub-adviser to the Funds. As used herein the term "Adviser" shall mean NBAI
and/or TradeStreet as the context may require. For additional information, see
"How The Funds Are Managed."

SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE NOT INSURED BY
THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS, FOR
WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Nations Cash Reserves
Nations Money Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves

Daily Class Shares
, 1999

For Fund information call:
1-800-626-2275

Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255

[logo]

CAPITAL 9/98

<PAGE>

Table Of Contents

Prospectus Summary 3
-----------------------------------------------------

About The Expenses Summary 4
Funds -----------------------------------------------------

Objectives 5
-----------------------------------------------------

How Objectives Are Pursued 5
-----------------------------------------------------

General Investment Policies 8
-----------------------------------------------------

How Performance Is Shown 10
-----------------------------------------------------

How The Funds Are Managed 10
-----------------------------------------------------

Organization And History 13
-----------------------------------------------------

How To Buy Shares 14
-----------------------------------------------------

About Your How To Redeem Shares 15
Investment -----------------------------------------------------

How To Exchange Shares 15
-----------------------------------------------------

Shareholder Servicing And Distribution Plans 16
-----------------------------------------------------

How The Funds Value Their Shares 17
-----------------------------------------------------

How Dividends And Distributions Are Made;
Tax Information 17
-----------------------------------------------------

Appendix A -- Portfolio Securities 19
-----------------------------------------------------

Appendix B -- Description Of Ratings 26
-----------------------------------------------------

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.

<PAGE>

About The Funds

Prospectus Summary

o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:

o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.

o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation of
capital and a stable net asset value.

o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.

o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.

o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current income
exempt from Federal income taxes.

o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment management services to more
than 60 investment company portfolios in the Nations Funds Family.
TradeStreet Investment Associates, Inc., an affiliate of NBAI, provides
investment sub-advisory services to the Funds. For more information about the
investment adviser and investment sub-adviser to the Funds, see "How The
Funds Are Managed."

o DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay them
monthly. Each Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.

o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "General Investment Policies --
Restraints on Investments by Money Market Funds" and "Appendix A."

o MINIMUM PURCHASE: The minimum initial investment in Daily Class Shares is
$1,000.

3
<PAGE>

Expenses Summary

Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize operating expenses for the Daily Class Shares of the
Funds. There are no transaction fees imposed upon the purchase, redemption or
exchange of shares. The Examples show the cumulative expenses attributable to a
hypothetical $1,000 investment in the Funds over specified periods.

Annual Operating Expenses
(as a percentage of average net assets)

<TABLE>
<CAPTION>
Nations
Nations Money Nations Nations Nations
Cash Market Treasury Government Municipal
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees .10% .10% .10% .10% .10%
Rule 12b-1 Fees .35% .35% .35% .35% .35%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .10% .10% .10% .10% .10%
Total Operating Expenses .80% .80% .80% .80% .10%
</TABLE>

Examples: You would pay the following expenses on a $1,000 investment in the
Daily 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 $8 $26 $44 $99
Nations Money Market Reserves $8 $26 $44 $99
Nations Treasury Reserves $8 $26 $44 $99
Nations Government Reserves $8 $26 $44 $99
Nations Municipal Reserves $8 $26 $44 $99
</TABLE>

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Daily Class Shares would bear
either directly or indirectly. The figures contained in the above tables are
based on estimates. There is no assurance that any fee waivers and/or
reimbursements will continue. In particular, to the extent Other Expenses are
less than those shown, waivers and/or reimbursements of Management Fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If fee waivers and/or reimbursements are
decreased or discontinued, the amounts contained in the "Examples" above may
increase. The information set forth in the foregoing table and examples relates
only to the Daily Class Shares. The Trust also offers Liquidity Class, Adviser
Class, Market Class, Capital Class, Trust Class, Investor Class, Service Class,
Primary A, Primary B, Investor A, Investor B, Investor C and Seafirst Class
Shares of the Funds. For a more complete description of the Funds' operating
expenses, see "How The Funds Are Managed."

FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.

Absent fee waivers "Advisory Fees", "Other Expenses" and "Total Operating
Expenses" for the Daily class of the indicated Fund would have been as follows;
Nations Cash Reserves .15%, .13%, and .88% respectively; Nations Money Market
Reserves .15%, .18%, and .93% respectively; Nations Treasury Reserves .15%,
.14%, and .89% respectively; Nations Government Reserves .15%, .14%, and
.89% respectively; and Nations Municipal Reserves .15%, .15%, and .90%
respectively.

4
<PAGE>

Objectives

Each Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.

Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.

Nations Money Market Reserves: Nations Money Market Reserves' investment
objective is to provide a high level of current income consistent with
liquidity, the preservation of capital and a stable net asset value.

Nations Treasury Reserves: Nations Treasury Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while providing
current income.

Nations Government Reserves: Nations Government Reserves' investment objective
is to preserve principal value and maintain a high degree of liquidity while
providing current income.

Nations Municipal Reserves: Nations Municipal Reserves' investment objective is
to preserve principal value and maintain a high degree of liquidity while
providing current income exempt from Federal income taxes.

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

How Objectives Are Pursued

Nations Cash Reserves

In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.

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

For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its

5
<PAGE>

assets in securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.

Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.

Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in first
tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."

Nations Money Market Reserves

In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; and
(v) repurchase agreements and reverse repurchase agreements involving any of the
foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers. The Fund will also invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may lend its portfolio securities to qualified
institutional investors, consistent with its investment objective and policies.

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

This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating, the Fund must invest strictly in Prime-1 rated issues.

Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities (as defined below). For more
information concerning these instruments, see "Appendix A."

Nations Treasury Reserves

In pursuing its investment objective, the Fund will invest in direct obligations
issued by the U.S. Treasury, STRIPS, and repurchase agreements and reverse
repurchase agreements involving such obligations. The Fund also may invest in
obligations the principal and interest of which are backed by the full faith and
credit of the United States Government, provided that the Fund shall, under
normal market conditions, invest at least 65% of its total assets in U.S.
Treasury bills, notes and bonds and other instruments issued directly by the
U.S. Government and repurchase agreements secured by such obligations. The Fund
also may lend its portfolio securities to qualified institutional investors, and
may invest in securities issued by other investment companies, consistent with
its investment objective and policies.

6
<PAGE>

The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P")(1)

Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.

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.

Nations Municipal Reserves

In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax ("Municipal Securities"). At least 80% of the Fund's
total assets will be invested in securities the interest on which is exempt from
Federal income taxes, based on opinions from bond counsel for the issuers.

The Fund invests in Municipal Securities that are determined to present minimal
credit risks and

- ---------------------
(1) "Standard and Poor's" and "Standard & Poor's 500" are trademarks of The
McGraw-Hill Companies, Inc.

that at the time of purchase, are considered to be of "high quality" -- E.G.,
having a long-term rating of "A" or higher from Duff & Phelps Credit Rating Co.
("D&P"), Fitch IBCA ("Fitch"), S&P, Thomson BankWatch, Inc. ("BankWatch") or
Moody's Investors Services, Inc. ("Moody's") in the case of certain bonds which
are lacking a short-term rating from the requisite number of NRSROs; rated "D-1"
or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's
in the case of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or
"VMIG-1" by Moody's in the case of variable rate demand notes; or rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
and BankWatch are each an NRSRO. Securities that are unrated at the time of
purchase will be determined to be of comparable quality by the Adviser pursuant
to guidelines approved by the Trust's Board of Trustees. The applicable
Municipal Securities ratings are described in "Appendix B".

The 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.

7
<PAGE>

trusts, partnerships or other special purpose issuers, including pass-through
certificates represent-ing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.

Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the 1940 Act,
the Fund invests only in first tier securities(as defined below). For more
information concerning the Fund's investments, see "Appendix A."

General Investment Policies

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

Each Fund except Nations Municipal Reserves may lend the securities in which it
is invested pursuant to agreements requiring that the loan be continuously
secured by cash, securities of the U.S. Government or its agencies, or any
combination of cash and such securities. The Fund will continue to receive
interest on the securities loaned while simultaneously earning interest on the
investment of cash collateral in U.S. Government securities. Collateral is
marked to market daily to provide a level at least equal to the market value of
the securities loaned. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser to be of
good standing and when, in the judgment of the Adviser, the consideration which
can be earned currently from such securities loans justifies the attendant risk.
Any guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which any Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of that Fund.

Restraints on Investments by Money Market Funds: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the 1940 Act, some of which are described below. A money market fund is
limited to acquiring obligations with a remaining maturity of 397 days or less,
or obligations with greater maturities, provided such obligations are subject to
demand features or resets which are less than 397 days, and to maintaining a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar denominated instruments
determined to present minimal credit risks and that, at the time of acquisition,
are rated in the first or second rating categories (known as "first tier" and
"second tier" securities, respectively) by the required number of NRSROs (at
least two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required rating.
The diversification requirements provide generally that a money market fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally
(except for Nations Municipal Reserves), no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.

8
<PAGE>

Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the year. Unless modified, these programs may not correctly
handle the change from "99" to "00" on January 1, 2000, and may not be able to
perform necessary functions. Any failure to adapt these programs in time could
hamper the Funds' operations. The Funds' principal service providers have
advised the Funds that they have been actively working on implementing necessary
changes to their systems, and that they expect that their systems will be
adapted in time, although there can be no assurance of success. Because the Year
2000 issue affects virtually all organizations, the companies or governmental
entities in which the Funds invest could be adversely impacted by the Year 2000
issue, although the extent of such impact cannot be predicted. To the extent the
impact on a portfolio holding is negative, a Fund's return could be adversely
affected.

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

The Funds may not:

1. Purchase securities of any issuer (except U.S. Government Obligations), if as
a result more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each Fund's
assets. Securities purchased by Nations Money Market Reserves that are subject
to certain unconditional demand features are subject to different
diversification requirements as described in the SAI.

2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply (a) with respect to Nations Cash Reserves, Nations
Treasury Reserves and Nations Government Reserves, to investments in U.S.
Government Obligations; (b) with respect to Nations Municipal Reserves, to
investments in tax-exempt securities issued by governments or political
subdivisions of governments; and (c) with certain limited exceptions with
respect to Nations Money Market Reserves.

3. Make loans, except that (a) a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies; (b) a Fund may enter into
repurchase agreements and non-negotiable time deposits, provided that repurchase
agreements and non-negotiable time deposits maturing in more than seven days,
illiquid restricted securities and other securities which are not readily
marketable do not exceed, in the aggregate, 10% of the Fund's total assets; and
(c) each Fund except Nations Municipal Reserves may engage in securities lending
as described in this Prospectus and in the SAI.

4. Nations Money Market Reserves may not borrow money except for temporary
purposes in amounts up to one-third of the value of its total assets at the time
of such borrowing. Whenever borrowings exceed 5% of the Fund's total assets, the
Fund will not make any investments.

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

The investment objective and certain investment policies of each Fund are
fundamental policies of each Fund. It is also a fundamental policy of each Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Funds will be able to maintain a constant net asset value of
$1.00 per share.

Fundamental policies cannot be changed with respect to a Fund without the
consent of the holders of a majority of that Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of a
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii) more
than 50% of the Fund's outstanding shares, whichever is less.

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How Performance Is Shown

From time to time, the Funds may advertise the "yield" and "effective yield" of
a class of shares and Nations Municipal Reserves also may advertise the "tax
equivalent yield" of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE.

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

The "tax-equivalent yield" of each class of shares of Nations Municipal Reserves
shows the level of taxable yield which, after payment of Federal income tax in
respect of such yield, equals the class's yield. The tax-equivalent yield of a
class of shares will always be higher than its yield.

Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles.

Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts in connection with investments in a Fund
will not be included in calculations of yield.

In addition to Daily Class Shares, the Funds offer Liquidity Class, Adviser
Class, Market Class, Capital Class, Trust Class, Investor Class, Service Class,
Primary A, Primary B, Investor A, Investor B, Investor C and Seafirst Class
Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, and other expenses, which may cause the performance of a class
to differ from the performance of the other classes. Performance quotations will
be computed separately for each class of a Fund's shares. The Funds' annual
report contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's agent or by calling
Nations Funds at the toll-free number indicated on the cover of this Prospectus.

How The Funds Are Managed

The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The SAI contains the names of and general
background information concerning each Trustee of Nations Institutional
Reserves.

As described below, each Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of each Fund.
Each Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
respective Fund.

The Trust and the Adviser have adopted codes of ethics which contain policies on
personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.

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<PAGE>

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 BankAmerica Corporation, a bank holding
company organized as a Delaware corporation. NBAI has its principal offices at
One NationsBank Plaza, Charlotte, North Carolina 28255.

TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations and institutions.

Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transactions and the commissions are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.

For the services provided and the expenses assumed pursuant to the investment
sub-advisory agreement, NBAI will pay TradeStreet sub-advisory fees, computed
daily and paid monthly, at the annual rates of .033% of the average daily net
assets of each Fund.

NBAI, TradeStreet and the administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for certain
expenses) in order to limit the total annualized operating expenses of the Daily
Class Shares of the Funds (as a percentage of average daily net assets) to .20%.

NBAI, TradeStreet, the administrator and the co-administrator each reserves the
right, in its sole discretion, to terminate this voluntary fee waiver at any
time. Shareholders will be notified in advance if and when the waiver is
terminated.

For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the investment advisory agreement, advisory fees at the indicated rates of
the following Funds' net assets: Nations Cash Reserves -- .15%; Nations Treasury
Reserves -- .14%; Nations Government Reserves -- .14%; and Nations Municipal
Reserves -- .12%.

For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the investment sub-advisory agreement, sub-advisory fees at the indicated
rates of the following Funds' net assets: Nations Cash Reserves -- .033%;
Nations Treasury Reserves -- .033%; Nations Government Reserves -- .033%; and
Nations Municipal Reserves -- .033%.

For the fiscal period from December 1, 1997 to May 15, 1998, the Emerald Funds
paid Barnett Capital Advisors, Inc. ("Barnett"), under a previous investment
advisory agreement, fees at the rate of .10% of the Nations Money Market
Reserves' average daily net assets (formerly called the Emerald Prime Advantage
Institutional Fund.)

The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves, Nations Money Market Reserves,
Nations Treasury Reserves and Nations Government Reserves.

The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.

Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contem-

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<PAGE>

plated by the investment advisory agreement and this Prospectus without
violation of the Glass-Steagall Act. Such counsel has pointed out, however, that
there are no controlling judicial or administrative interpretations or decisions
and that future judicial or administrative interpretations of, or decisions
relating to, present federal or state statutes, including the Glass-Steagall
Act, and regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such federal or state
statutes, regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If such entities were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.

Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, and NBAI, serve as
co-administrators of Nations Funds pursuant to co-administration agreements.
Pursuant to the terms of the co-administration agreements, 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.
Pursuant to the terms of the co-administration agreements, NBAI provides various
administrative and accounting services to the Funds, including performing the
calculations necessary to determine net asset value per share and dividends,
preparing tax returns and financial statements and maintaining the portfolio
records and certain of the general accounting records for the Funds. Stephens
and NBAI are entitled to receive a combined fee at the annual rate of up to .10%
of each Fund's average daily net assets.

The Bank of New York ("BNY"), located at 90 Washington Street, New York, New
York 10286 serves as sub-administrator for the Funds pursuant to a sub-
administration agreements. Pursuant to the terms of the sub-administration
agreements, BNY assists NBAI in performing certain administrative and accounting
services. For providing such services, BNY is entitled to receive a fee from
NBAI at the rate of: 1 1/4 basis point per annum of the average net assets of
each Fund up to $3 billion; 1 basis point on the next $3 billion; 1/2 of one
basis point on the next $4 billion; and 1/4 of one basis point on the excess.

For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees, at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.

Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. No compensation is
paid to Stephens for distribution services for the Capital Class Shares.

The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.

In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation, including trips to sales seminars or vacation
destinations, tickets to sporting events, theater or other entertainment,
opportunities to participate in golf or other outings and gift certificates for
meals or merchandise. This non-cash compensation program may be amended or
terminated at any time by Stephens.

BNY (the "Custodian") provides custodial services for the assets of all Nations
Funds. In return for providing custodial services to the Nations Funds Family,
BNY is entitled to receive, in addition to out-of-pocket expenses, fees at the
rate of (i) 3/4 of one basis point per annum on the aggregate net assets of all
Nations Funds' non-money market funds up to $10 billion; and (ii) 1/2 of one
basis point on the excess, including all Nations Funds' money market funds.

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<PAGE>

First Data Investor Services Group, Inc. ("First Data") serves as transfer
agent (the "Transfer Agent") for each Fund's shares.

PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.

Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and NBAI; taxes; interest;
fees (including fees paid to Nations Funds' Trustees and officers); federal and
state securities registration and qualification fees; brokerage fees and
commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or NBAI under their
respective agreements with Nations Funds; and any extraordinary expenses. Daily
Class Shares may bear certain class specific expenses. Any general expenses of
Nations Institutional Reserves that are not readily identifiable as belonging to
a particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations
Institutional Reserves or in such other manner as the Board of Trustees deems
appropriate.

Organization And History

The Funds are members of the Nations Funds Family, which consists of Nations
Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations
Institutional Reserves, Nations Annuity Trust and Nations LifeGoal Funds, Inc.
The Nations Funds Family currently has more than 60 distinct investment
portfolios and total assets in excess of $40 billion.

Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and Declaration
of Trust dated January 22, 1990. The Trust's fiscal year end is April 30. The
Agreement and Declaration of Trust permits the Trust to offer separate series of
units of beneficial interest ("shares") and different classes of each series.
Each Fund is a series of the Trust. Except for differences between classes of a
Fund pertaining to distribution and shareholder servicing arrangements, each
share of each Fund represents an equal proportionate interest in that Fund. This
Prospectus relates only to the Daily Class Shares of the following Funds of
Nations Institutional Reserves: Nations Cash Reserves, Nations Money Market
Reserves, Nations Treasury Reserves, Nations Government Reserves and Nations
Municipal Reserves.

To obtain additional information regarding the Funds' other classes of shares
which may be available to you, contact Nations Funds at 1-800-626-2275.

Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the Trust is not required to hold annual meetings
but approval will be sought for certain changes in the operation of the Trust
and for the election of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.

As of , 1999, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of the
Trust and therefore could be considered to be a controlling person of the Trust
for purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series of shares over which NationsBank, Bank of
America and their affiliates possessed or shared power to dispose or vote as of
a certain date, see the SAI.

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<PAGE>

The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust. Further information regarding individual Trustees may be
found in the SAI.

About Your Investment

How To Buy Shares

Daily Class Shares are offered to retail 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 Daily Class Shares is $1,000.

The Funds reserve the right, in their discretion, to make Daily Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.

Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by Stephens, the Transfer Agent or their
respective agents. A purchase order must be received by Stephens, the Transfer
Agent or their respective agents by 3:00 p.m., Eastern time (12:00 noon, Eastern
time, with respect to Nations Municipal Reserves). A purchase order received
after such time will not be accepted; notice thereof will be given to the
institution placing the order and any funds received will be returned promptly
to the sending institution. If federal funds are not available by 4:00 p.m.,
Eastern time, the order will be canceled.

The purchase price is the net asset value per share next determined after
acceptance of the order by Stephens, the Transfer Agent or their respective
agents. The agents are responsible for transmitting orders for purchases of
Daily Class Shares by their customers and delivering required funds on a timely
basis. Stephens is also responsible for transmitting orders its receives to
Nations Funds.

Systematic Investment Plan: Under the Funds' Systematic Investment Plan ("SIP"),
a shareholder may automatically purchase Daily Class Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or the last day of the applicable month. Subject
to certain exceptions for employees of NationsBank and its affiliates and
pre-existing SIP accounts, the systematic investment amount may be in any amount
from $50 to $100,000. For more information concerning the SIP, contact your
Agent or Nations Funds.

Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholder
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds

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<PAGE>

provides written confirmation to shareholders of each telephone share
transaction. In addition, Nations Funds reserves the right to record all
telephone conversations. Shareholders should be aware that during periods of
significant economic or market change, telephone transactions may be difficult
to complete.

How To Redeem Shares

Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Municipal Reserves), and
payment will normally be wired the same day. The Trust reserves the right to
wire redemption proceeds within three Business Days after receiving a redemption
order if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. Redemption orders will not be accepted by Stephens, the Transfer
Agent or their respective agents after 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves), for execution on that
Business Day. The redemption price is the net asset value per share next
determined after acceptance of the redemption order by Stephens, the Transfer
Agent or their respective agents. Redeemed shares are not entitled to dividends
declared on the day the redemption order is effective. A redemption will
generally result in a taxable capital gain or loss for Federal income tax
purposes.

The Trust may redeem an investor's account upon 30 day's written notice if the
balance in the investor's account drops below $500 as a result of redemptions.
Share balances also may be redeemed at the direction of an agent pursuant to
arrangements between the agent and its customers. The Trust also may redeem
shares of a Fund involuntarily or make payment for redemption in readily
marketable securities or other property under certain circumstances in
accordance with the 1940 Act.

Prior to effecting a redemption of Daily 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.

Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the Daily
Class Shares in his/her accounts within the Nations Funds Family (valued at the
net asset value at the time of the establishment of the AWP) equals $10,000 or
more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Daily Class Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Funds at any time.

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<PAGE>

How To Exchange Shares

The exchange feature enables a shareholder of Daily Class Shares of a Fund to
acquire Daily Class Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of Daily
Class Shares for Daily Class Shares of another Fund is made on the basis of the
next calculated net asset value per share of each Fund after the exchange order
is received.

The Fund and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Funds upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.

The current prospectus for each fund of Nations Funds describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. For Federal income tax
purposes, an exchange will be treated in the same manner as a redemption of
shares.

The Daily Class Shares exchanged must have a current value of at least $1,000.
Nations Funds and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.

During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the institution through which the original shares were
purchased.

Shareholder Servicing And Distribution Plans

Shareholder Servicing Plan: The Fund's shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Daily Shares. 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
or the Board of Directors, provided that the annual rate may not exceed .25% of
the average daily net asset value of a Fund's Daily 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 Daily Shares; providing sub-accounting with respect to Daily Shares
beneficially owned by Customers or the information necessary for sub-accounting;
responding to inquiries from Customers concerning their investment in Daily
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.

Nations Funds may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Fund's Servicing Plan
described above and the terms of

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<PAGE>

the Servicing Agreements. See the SAI for more details on the Servicing Plan.

DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors also have approved a Distribution Plan with respect to Daily Shares of
the Funds. Pursuant to the Distribution Plan, each Fund may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of Daily Shares. Payments under the Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Trustees or Board of Directors provided that the annual rate may
not exceed .35% of the average daily net asset value of a Fund's Daily Shares.
Payments to Stephens pursuant to the Distribution Plan will be used primarily to
compensate or reimburse Stephens for distribution services provided by Stephens
and related expenses incurred by Stephens, including payments by Stephens to
compensate or reimburse Selling Agents for sales support services provided, and
related expenses incurred by, such Selling Agents.

Nations Funds and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Fund's
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.

Nations Funds understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Daily Shares for various services
provided in connection with a Customer's account. These fees would be in
addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Shareholder Servicing
Agreement with Nations Funds. The Sales Support Agreements and Shareholder
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agents by Stephens or Nations Funds and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers of Agents should read this Prospectus
in light of the terms governing their accounts with their Agents.

The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.

In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed under the Distribution Plan, 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. Stephens may also, from time to
time, pay additional consideration to Agents not to exceed .50% of the offering
price per share on all sales of Daily Shares to retirement plans as an expense
of Stephens or for which Stephens may be reimbursed under the Distribution Plan.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.

Stephens has also 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. This non-cash compensation program may be amended or
terminated at any time by Stephens.

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How The Funds Value Their Shares

The net asset value of a share of each class is calculated by dividing the total
value of its respective assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves), on each Business Day.
Currently, the days on which the Federal Reserve Bank of New York is closed
(other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas Day.

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

How Dividends And Distributions Are Made; Tax Information

Dividends and Distributions: The net income of each Fund is determined and
declared on each Business Day as a dividend to shareholders of record as of 3:00
p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations Municipal
Reserves), on the day of declaration. Dividends are paid by each Fund in
additional shares of the same class, unless the shareholder has elected to take
such payment in cash, on the first Business Day of each month. Shareholders may
change their election by providing written notice to the Transfer Agent at least
15 days prior to the change.

The amount of dividends payable on Daily Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.

Tax Information: Each of the Funds intends to continue to qualify as a separate
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). Such qualification relieves a Fund of liability for
Federal income tax to the extent its earnings are distributed in accordance with
the Code.

Each Fund intends to distribute substantially all of its net investment income
each taxable year. Except as provided below, distributions from a Fund's net
investment income and net short-term capital gains, if any, are generally
designated as dividend distributions and taxable to the Fund's shareholders as
ordinary income. Distributions from a Fund's net capital gains are designated as
capital gain distributions and will be taxable to the Fund's shareholders as
long-term capital gains. Noncorporate shareholders may be taxed on such
distributions at preferential rates. See "Taxes -- Capital Gain Distributions"
in the SAI. In general, distributions will be taxable when paid, whether a
Fund's shareholder takes such distributions in cash or has them automatically
reinvested in additional Fund shares. However, distributions declared in
October, November, and December and distributed by January 31 of the following
year will be taxable as if they were paid by December 31.

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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 taxes.
See "Taxes -- Backup Withholding" in the SAI.

The foregoing discussion regarding taxes is based on tax laws which were in
effect as of the date of this Prospectus and summarizes only some of the
important income tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning; you
should consult your own tax advisor with respect to your specific tax situation
as well as with respect to foreign, state and local taxes. Further Federal tax
considerations are discussed in the SAI.

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.

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<PAGE>

as pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt.

Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Cash Reserves and Nations Money
Market Reserves generally limit investments in bank instruments to (a) U.S.
dollar-denominated obligations of U.S. banks which have total assets exceeding
$1 billion and which are members of the Federal Deposit Insurance Corporation
(including obligations of foreign branches of such banks) or of the 75 largest
foreign commercial banks in terms of total assets; or (b) U.S.
dollar-denominated bank instruments issued by other banks believed by the
Adviser to present minimal credit risks. For purposes of the foregoing, total
assets may be determined on the basis of the bank's most recent annual financial
statements.

Nations Cash Reserves and Nations Money Market Reserves may invest up to 100% of
their assets in obligations issued by banks. Nations Cash Reserves and Nations
Money Market Reserves may invest in U.S. dollar-denominated obligations issued
by foreign branches of domestic banks ("Eurodollar" obligations) and domestic
branches of foreign banks ("Yankee dollar" obligations).

Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.

Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BONY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.

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

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<PAGE>

repurchase agreements involve the risk that the market value of the securities
the Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of
the proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. A Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be creditworthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interest of the Fund to do so. In this case, such
reverse repurchase agreements will be considered borrowings subject to the asset
coverage described above.

Currently, Nations Treasury Reserves has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.

Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial instruments
to instruments that: (a) if rated by at least two NRSROs, are rated in the
highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by the Board of
Trustees on the advice of the Adviser.

Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.

Foreign Securities: Foreign securities include debt obligations (dollar
denominated) of foreign corporations and banks as well as obligations of foreign
governments and their political subdivisions (which will be limited to direct
government obligations and government-guaranteed securities). Such investments
may subject a Fund to special investment risks, including future political and
economic developments, the possible imposition of withholding taxes on income
(including interest, dividends and disposition proceeds), possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which might
adversely affect the payment of principal and interest on such obligations. In
addition, foreign issuers in general may be subject to different accounting,
auditing, reporting, and record keeping standards than those applicable to
domestic companies, and securities of foreign issuers may be less liquid and
their prices more volatile than those of comparable domestic issuers.

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<PAGE>

culty of predicting international trade patterns. In addition, there may be less
publicly available information about a foreign company than about a U.S.
company. Further, foreign securities markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets volume and liquidity
are less than in the United States. Fixed commissions on foreign securities
exchanges are generally higher than the negotiated commissions on U.S.
exchanges, and there is generally less government supervision and regulation of
foreign securities exchanges, brokers, and companies than in the United States.
With respect to certain foreign countries, there is a possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets, or diplomatic developments that could affect investments within
those countries. Because of these and other factors, securities of foreign
companies acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.

Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GIC") are investment
instruments issued by highly rated insurance companies. Pursuant to such
contracts, a Fund may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits to a
Fund guaranteed interest. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. The purchase price paid for
a GIC generally becomes part of the general assets of the issuer, and the
contract is paid from the general assets of the issuer.

A Fund will only purchase GICs from issuers that, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.

Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 10% of the value of their respective net assets in securities that are
illiquid. Repurchase agreements, time deposits and GICs that do not provide for
payment to a Fund within seven days after notice, and illiquid restricted
securities are subject to the limitation on illiquid securities. In addition,
interests in privately arranged loans acquired by Nations Cash Reserves and
Nations Money Market Reserves may be subject to this limitation.

If otherwise consistent with their investment objectives and policies, the Funds
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by a Fund's Board of Trustees or
the Adviser, acting under guidelines approved and monitored by such Fund's Board
of Trustees, after considering trading activity, availability of reliable price
information and other relevant information, that an adequate trading market
exists for that security. To the extent that, for a period of time, qualified
institutional or other buyers cease purchasing such restricted securities
pursuant to Rule 144A or otherwise, the level of illiquidity of a Fund holding
such securities may increase during such period.

Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as 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 the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in the
price of securities the Fund anticipated purchasing at a later date rather than
for speculative purposes. A Fund will not sell interest rate caps or floors that
it does not own.

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

Municipal Securities: The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.

Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.

Municipal securities may include variable- or floating-rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.

Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality", a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.

Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven

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days. Participations in such loans, however, may not have such a demand
provision and may not be otherwise marketable. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is illiquid
and payable on demand may depend on the ability of the municipal borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless a Fund
determines that a particular loan issue, unlike most such loans, has a readily
available market). As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such municipal borrower,
including its ability to meet contractual payment obligations.

Municipal Securities may include units of participation in trusts holding pools
of tax-exempt leases. Municipal participation interests may be purchased from
financial institutions, and give the purchaser an undivided interest in one or
more underlying municipal security. To the extent that municipal participation
interests are considered to be "illiquid securities," such instruments are
subject to each Fund's limitation on the purchase of illiquid securities.
Municipal leases and participating interests therein which may take the form of
a lease or an installment sales contract, are issued by state and local
governments and authorities to acquire a wide variety of equipment and
facilities. Interest payments on qualifying leases are exempt from Federal
income tax.

Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. To the extent that municipal participation interests are considered
to be "illiquid securities" such instruments are subject to each Fund's
limitation on the purchase of illiquid securities.

In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their portfolios.
Under a stand-by commitment, a dealer would agree to purchase at a Fund's option
specified Municipal Securities at a specified price. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.

A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.

A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Board of Trustees. Nations Municipal Reserves may
invest more than 40% of its portfolio in securities with put or demand features
guaranteed by banks and other financial institutions. Accordingly, changes in
the credit quality of these institutions could cause losses to the Fund and
affect its share price.

Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities, the interest
on which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable

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from the revenues of similar projects, a Fund will be subject to the unique
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.

Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, a Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund bears directly in connection with its own operations.
Pursuant to an exemptive order issued by the SEC, the Nations Funds' non-money
market funds may purchase shares of Nations Funds' money market funds.

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

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

Short-Term Trust Obligations: Nations Cash Reserves and Nations Money Market
Reserves may invest in short-term obligations issued by special purpose trusts
established to acquire specific issues of government or corporate securities.
Such obligations entitle a Fund to a proportional fractional interest in
payments received by a trust, either from the underlying securities owned by the
trust or pursuant to other arrangements entered into by the trust. A trust may
enter into a swap arrangement with a highly rated investment firm, pursuant to
which the trust grants to the counterparty certain of its rights with respect to
the securities owned by the trust in exchange for the obligation of the
counterparty to make payments to the trust according to an established formula.
The trust obligations purchased by a Fund must satisfy the quality and maturity
requirements generally applicable to the Funds pursuant to Rule 2a-7 under the
1940 Act.

U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some 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 Mort-

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gage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.

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

Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.

When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.

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Appendix B -- Description Of Ratings

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

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

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

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

To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.

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

Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.

A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.

Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. With regard to municipal bonds, those bonds in the
Aa and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.

The following summarizes the highest three ratings used by D&P for bonds:

AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.

AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.

A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods
of economic stress.

To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.

The following summarizes the highest three ratings used by Fitch for bonds:

27
<PAGE>

AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F1+.

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

To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.

The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:

MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.

MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.

The following summarizes the two highest ratings used by S&P for short-term
municipal notes:

SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

The following summarizes the two highest rating categories used by Fitch for
short-term obligations:

F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.

F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.

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.

28
<PAGE>

are considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

D&P uses the short-term debt ratings described above for commercial paper.

Fitch uses the short-term debt ratings described above for commercial paper.

BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.

BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest investment grade ratings used by
BankWatch for long-term debt:

AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.

AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.

A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.

The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.

TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".

29
<PAGE>

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<PAGE>

(A redherring appears on the left hand side of the page, rotated 90 degrees.)

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

PRELIMINARY PROSPECTUS SUBJECT
TO COMPLETION DATED NOVEMBER , 1998

Prospectus
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds) (the
"Trust") is an open-end management investment company which seeks to provide a
convenient and economical means of investing in one or more professionally
managed funds. The Trust's funds offer multiple classes of shares; this
Prospectus relates to the Investor Class Shares of the following diversified
money market funds (each, a "Fund" and collectively the "Funds"): NATIONS CASH
RESERVES, NATIONS MONEY MARKET RESERVES, NATIONS TREASURY RESERVES, NATIONS
GOVERNMENT RESERVES AND NATIONS MUNICIPAL RESERVES.

The Trust's Investor Class Shares are offered to investors that meet the $25,000
minimum initial investment requirement and to NationsBank, N.A. ("NationsBank"),
Bank of America National Trust and Savings Association ("Bank of America"),
their affiliates and correspondents, for the investment of their own funds or
funds for which they act in a fiduciary, agency or custodial capacity.

IT IS A FUNDAMENTAL POLICY OF EACH FUND TO USE ITS BEST EFFORTS TO MAINTAIN A
CONSTANT NET ASSET VALUE OF $1.00 PER SHARE.

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

This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Investor Class Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about the Trust is contained in a separate Statement of
Additional Information (the "SAI") that has been filed with the Securities and
Exchange Commission (the "SEC") and is available without charge by writing or
calling the Trust at the address or telephone number shown below. The SAI for
the Trust dated ______________, 1999, is incorporated by reference in its
entirety into this Prospectus. The SEC maintains a Web site (http://www.sec.gov)
that contains the SAI, material incorporated by reference in this Prospectus and
other information regarding registrants that file electronically with the SEC.
NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to each of the
Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment
sub-adviser to the Funds. As used herein the term "Adviser" shall mean NBAI
and/or TradeStreet as the context may require. For additional information, see
"How The Funds Are Managed."

SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK OR BANK OF AMERICA OR ANY OF THEIR
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.

Nations Cash Reserves
Nations Money Market Reserves
Nations Treasury Reserves
Nations Government Reserves
Nations Municipal Reserves

Investor Class Shares
, 1999

For Fund information call:
1-800-626-2275

Nations Institutional Reserves
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255

[LOGO]

INVESTOR 9/98
<PAGE>

Table Of Contents
Prospectus Summary 3
-----------------------------------------------------
About The Funds
Expenses Summary 4
-----------------------------------------------------

Objectives 5
-----------------------------------------------------

How Objectives Are Pursued 6
-----------------------------------------------------

General Investment Policies 8
-----------------------------------------------------

How Performance Is Shown 10
-----------------------------------------------------

How The Funds Are Managed 11
-----------------------------------------------------

Organization And History 14
-----------------------------------------------------

About Your Investment How To Buy Shares 15
-----------------------------------------------------

How To Redeem Shares 16
-----------------------------------------------------

How To Exchange Shares 16
-----------------------------------------------------

Distribution and Shareholder Servicing Plans 17
-----------------------------------------------------

How The Funds Value Their Shares 18
-----------------------------------------------------

How Dividends And Distributions Are Made;
Tax Information 18
-----------------------------------------------------

Appendix A -- Portfolio Securities 19
-----------------------------------------------------

Appendix B -- Description Of Ratings 26
-----------------------------------------------------

2
<PAGE>

About The Funds

Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVES AND POLICIES:

o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.

o Nations Money Market Reserves' investment objective is to seek to provide a
high level of current income consistent with liquidity, the preservation of
capital and a stable net asset value.

o Nations Treasury Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.

o Nations Government Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current
income.

o Nations Municipal Reserves' investment objective is to preserve principal
value and maintain a high degree of liquidity while providing current income
exempt from Federal income taxes.

o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of each Fund, there is no assurance that they will
be able to do so. Investments in a Fund are not insured against loss of
principal. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "General Investments and Policies
-- Restraints on Investments by Money Market Funds" and "Appendix A."

o MINIMUM PURCHASE: The minimum initial investment in Investor Class Shares is
$25,000.

3
<PAGE>

Expenses Summary

Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize operating expenses for the Investor Class Shares of
the Funds. There are no transaction fees imposed upon the purchase, redemption
or exchange of shares. The Examples show the cumulative expenses attributable to
a hypothetical $1,000 investment in the Funds over specified periods.

Annual Operating Expenses
(as a percentage of average net assets)

<TABLE>
<CAPTION>
Nations
Money Nations Nations Nations
Nations Market Treasury Government Municipal
Cash Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees .10% .10% .10% .10% .10%
Rule 12b-1 Fees .10% .10% .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .10% .10% .10% .10% .10%
Total Operating Expenses .55% .55% .55% .55% .55%
</TABLE>

Examples: You would pay the following expenses on a $1,000 investment in the
Investor 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 Money Market Reserves $6 $18 $31 $69
Nations Treasury Reserves $6 $18 $31 $69
Nations Government Reserves $6 $18 $31 $69
Nations Municipal Reserves $6 $18 $31 $69
</TABLE>

Absent fee waivers "Advisory Fees", "Other Expenses" and "Total Operating
Expenses" for the Investor class of the indicated fund would have been as
follows; Nations Cash Reserves .15%, .13% and .63% respectively; Nations
Money Market Reserves .15%, .18%, and .68% respectively; Nations Treasury
Reserves .15%, .14%, and .64% respectively; Nations Government Reserves .15%,
.14%, and .64% respectively; and Nations Municipal Reserves .15%, .15% and
.65% respectively.

4
<PAGE>

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Investor Class Shares would
bear either directly or indirectly. The figures contained in the above tables
are based on estimates. There is no assurance that any fee waivers and/or
reimbursements will continue. In particular, to the extent Other Expenses are
less than those shown, waivers and/or reimbursements of Management Fees, if any,
may decrease. Shareholders will be notified of any decrease that materially
increases Total Operating Expenses. If fee waivers and/or reimbursements are
decreased or discontinued, the amounts in the "Examples" above may increase. The
information set forth in the foregoing table and examples relates only to the
Investor Class Shares. The Funds also offer Capital Class, Adviser Class, Market
Class, Liquidity Class, Trust Class, Daily Class and Service Class Shares. For a
more complete description of the Funds' operating expenses, see "How The Funds
Are Managed."

THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.

Objectives

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.

5
<PAGE>

How Objectives Are Pursued

Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; (v)
instruments eligible for acquisition by Nations Government Reserves (see below);
and (vi) repurchase agreements and reverse repurchase agreements involving any
of the foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.

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.

Nations Money Market Reserves

In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks, provided
that such institutions (or, in the case of a branch, the parent institution)
have total assets of $1 billion or more as shown on their last published
financial statements at the time of investment; (iii) short-term corporate
obligations of issuers of commercial paper whose commercial paper is eligible
for purchase by the Fund; (iv) high quality short-term taxable obligations
issued by state and local governments, their agencies and instrumentalities; and
(v) repurchase agreements and reverse repurchase agreements involving any of the
foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers. The Fund will also invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal

6
<PAGE>

Securities or "STRIPS"), and repurchase agreements and reverse repurchase
agreements involving such obligations. The Fund also may lend its portfolio
securities to qualified institutional investors, consistent with its investment
objective and policies.

This Fund is rated by a nationally recognized statistical rating organization
(an "NRSRO") in the highest rating category for money market mutual funds. To
maintain this rating the Fund must invest strictly in Prime-1 rated issues.

Nations Treasury Reserves

The dealers selected for the Fund must meet criteria established by Standard &
Poor's Corporation ("S&P").(1)

Nations Treasury Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Exempt Money Market Funds.

Nations Government Reserves

Nations Municipal Reserves

The Fund invests in Municipal Securities that are determined to present minimal
credit risks and, that at the time of purchase, are considered to be of "high
quality" -- E.G., having a long-term rat-

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

(1) "Standard and Poor's" and "Standard & Poor's 500" are trademarks
of The McGraw-Hill Companies, Inc.
7
<PAGE>

ing of "A" or higher from Duff & Phelps Credit Rating Co. ("D&P"), Fitch IBCA
("Fitch"), S&P, Thomson BankWatch, Inc. ("BankWatch") or Moody's Investors
Services, Inc. ("Moody's") in the case of certain bonds which are lacking a
short-term rating from the requisite number of NRSROs; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in the case
of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or "VMIG-1" by
Moody's in the case of variable rate demand notes; or rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by Moody's
in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's, and
BankWatch are each an NRSRO. Securities that are unrated at the time of purchase
will be determined to be of comparable quality by the Adviser pursuant to
guidelines approved by the Trust's Board of Trustees. The applicable Municipal
Securities ratings are described in "Appendix B".

The 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.

General Investment Policies

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

8
<PAGE>

ment of principal and interest on the guaranteed security and does not guarantee
the yield or value of that security or the yield or value of shares of that
Fund.

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

The Funds may not:

9
<PAGE>

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.

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

How Performance Is Shown

From time to time the Funds may advertise the "yield" and "effective yield" of a
class of shares and Nations Municipal Reserves may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.

The "tax-equivalent yield" of each class of shares of Nations Municipal Reserves
shows the level of taxable yield which, after payment of Federal income tax in
respect of such yield equals the Class's yield. The tax-equivalent yield of a
class of shares will always be higher than its yield.

10
<PAGE>

In addition to Investor Class Shares, the Trust offers Capital Class, Adviser
Class, Market Class, Liquidity Class, Trust Class, Daily Class, Service Class
Shares of the Funds, and Primary A, Primary B, Investor A, Investor B, Investor
C and Seafirst Class Shares of its non-money market funds. Each class of shares
may bear different sales charges, shareholder servicing fees, and other
expenses, which may cause the performance of a class to differ from the
performance of the other classes. Performance quotations will be computed
separately for each class of a Fund's shares. The Funds' annual report contains
additional performance information and is available upon request without charge
from the Funds' distributor or an investor's Agent (as defined below) or by
calling Nations Funds at the toll-free number indicated on the cover of this
Prospectus.

How The Funds Are Managed

The business and affairs of Nations Institutional Reserves are managed under the
direction of its Board of Trustees. The Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Institutional
Reserves.

Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions including, in the case of agency
transactions, financial institutions which are affiliated with NationsBank or
which have sold shares in the Funds, if the Adviser believes the quality of the
transactions and the commissions are comparable to what they would be with other
qualified brokerage firms. From time to time, to the extent consistent with its
investment objective, policies and restrictions, each Fund may invest in
securities of companies with which NationsBank has a lending relationship.

11
<PAGE>

NBAI, TradeStreet and the co-administrators 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
Investor 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 and the co-administrators each reserve the right, in their
sole discretion, to terminate this voluntary fee waiver at any time.
Shareholders will be notified in advance if and when the waiver is terminated.

For the fiscal year ended April 30, 1998, after waivers, the Funds paid NBAI
under the advisory agreement, advisory fees at the indicated rates of the
following Funds' net assets: Nations Cash Reserves -- .15%; Nations Treasury
Reserves -- .14%; Nations Government Reserves -- .14%; and Nations Municipal
Reserves -- .12%.

The Tax-Exempt Money Market Management Team of TradeStreet is responsible for
the day-to-day management of Nations Municipal Reserves.

Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the investment advisory
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, thereof could prevent
such entities from continuing to perform, in whole or in part, such services. If
such entities were prohibited from performing any such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.

Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, and NBAI, serve as
co-administrators of Nations Funds pursuant to a co-administration agreement.
Pursuant to the terms of the co-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.
Pursuant to the terms of the co-administration agreements, NBAI provides various
administrative and accounting services to the Funds, including performing the
calculations necessary to determine net asset value per share and dividends,
preparing tax returns and financial statements and maintaining the portfolio
records and certain of the general accounting records for the Funds. Stephens
and NBAI are entitled to receive a combined fee at the annual rate of up to
[.10%] of each Fund's average daily net assets.

12
<PAGE>

tive and accounting services. For providing such services, BNY is entitled to
receive a fee from NBAI at the rate of: 1 1/4 basis point per annum of the
average net assets of each Fund up to $3 billion; 1 basis point on the next $3
billion; 1/2 of one basis point on the next $4 billion; and 1/4 of one basis
point on the excess.

For the fiscal year ended April 30, 1998, after waivers, the Funds paid their
administrators combined fees at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.

Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer. The Trust has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Class Shares of the Funds. See "Distribution And Shareholder
Servicing Plans."

The Adviser may also pay out of its own assets amounts to Stephens and other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.

BNY (the "Custodian") provides custodial services for the assets of the Funds.In
return for providing custodial services to the Nations Funds Family, BNY is
entitled to receive, in addition to out-of-pocket expenses, fees at the rate of
(i) 3/4 of one basis point per annum on the aggregate net assets of all Nations
Funds' non-money market funds up to $10 billion and (ii) 1/2 of one basis point
on the excess, including all Nations Funds' money market funds.

First Data Investor Services Group, Inc. ("First Data") serves as transfer
agent (the "Transfer Agent") for each Fund's shares.

PricewaterhouseCoopers LLP serves as the independent accountant of the Trust.
Their address is 160 Federal Street, Boston, Massachusetts 02110.

Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and NBAI; taxes; interest;
fees (including fees paid to Nations Funds' Trustees and officers); federal and
state securities registration and qualification fees; brokerage fees and
commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the Custodian
and Transfer Agent; certain insurance premiums; outside auditing and legal
expenses; costs of shareholder reports and shareholder meetings; other expenses
which are not expressly assumed by the Adviser, Stephens or NBAI under their
respective agreements with Nations Funds; and any extraordinary expenses.
Investor Class Shares may bear certain class specific expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of NationsInstitutional Reserves that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Institutional Reserves or in such other manner as the Board of
Trustees deems appropriate.

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Organization And History

Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and Declaration
of Trust dated January 22, 1990. The Trust's fiscal year end is April 30. The
Agreement and Declaration of Trust permits the Trust to offer separate series of
units of beneficial interest ("shares") and different classes of each series.
Each Fund is a series of the Trust. Except for differences between classes of a
Fund pertaining to distribution and shareholder servicing arrangements, each
share of each Fund represents an equal proportionate interest in that Fund. This
Prospectus relates to the Investor Class Shares of the following Funds of
Nations Institutional Reserves: Nations Cash Reserves, Nations Money Market
Reserves, Nations Treasury Reserves, Nations Government Reserves and Nations
Municipal Reserves.

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.

As of , 1999, NationsBank, Bank of America and their affiliates
possessed or shared power to dispose or vote with respect to more than 25% of
the outstanding shares of the Trust and therefore could be considered to be a
controlling person of the Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank, Bank of America and their affiliates possessed or shared
power to dispose or vote as of a certain date, see the SAI.

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About Your Investment

How To Buy Shares

Investor Class Shares are offered to investors that meet the $25,000 minimum
initial investment requirement, to NationsBank and Bank of America, their
affiliates and correspondents, for the investment of their own funds or funds
for which they act in a fiduciary, agency or custodial capacity [and to 401(k)
plans making an initial investment of $ ].

The Funds reserve the right in their discretion, to make Investor Class Shares
available to other categories of investors, including those who become eligible
in connection with a merger or reorganization.

Purchases and redemptions may be effected on days on which the Federal Reserve
Bank of New York is open for business (a "Business Day"). Purchases will be
effected only when federal funds are available for investment on the Business
Day the purchase order is received by Stephens, the Transfer Agent, or their
respective agents. A purchase order must be received by Stephens, the Transfer
Agent, or their respective agents by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Municipal Reserves). A purchase order
received after such time will not be accepted; notice thereof will be given to
the institution placing the order and any funds received will be returned
promptly to the sending institution. If federal funds are not available by 4:00
p.m., Eastern time, the order will be canceled.

The purchase price is the net asset value per share next determined after
acceptance of the order by Stephens, the Transfer Agent, or their respective
agents. The agents are responsible for transmitting orders for purchases of
Investor Class Shares by their customers and delivering required funds on a
timely basis. Stephens is also responsible for transmitting orders it receives
to Nations Funds.

Telephone Transactions: Shareholders may effect purchases, redemptions and
exchanges by telephone. See "How to Redeem Shares" and "How to Exchange Shares"
below. If a shareholder desires to elect the telephone transaction feature after
opening an account, a signature guarantee will be required. Shareholders should
be aware that by electing the telephone transaction feature, such shareholders
may be giving up a measure of security that they may have if they were to
authorize written requests only. A shareholder may bear the risk of any
resulting losses from a telephone transaction. Nations Funds will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine, and if Nations Funds and its service providers fail to employ such
measures, they may be liable for any losses due to unauthorized or fraudulent
instructions. Nations Funds provides written confirmation to shareholders of
each telephone share transaction. In addition, Nations Funds reserves the right
to record all telephone conversations. Shareholders should be aware that during
periods of significant economic or market change, telephone transactions may be
difficult to complete.

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How To Redeem Shares

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 Investor Class Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Funds have previously been
made. Nations Funds may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.

How To Exchange Shares

The exchange feature enables a shareholder of Investor Class Shares of a Fund to
acquire Investor Class Shares of another Fund when that shareholder believes
that a shift between Funds is an appropriate investment decision. An exchange of
Investor Class Shares for Investor 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 Investor Class of Shares exchanged must have a current value of at least
$25,000. Nations Funds

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and Stephens reserve the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.

Distribution And Shareholder Servicing Plans

The Funds' Distribution Plan (the "Investor Plan"), adopted pursuant to Rule
12b-1 under the 1940 Act, permits each Fund to compensate Stephens for
distribution-related expenses incurred in connection with Investor Shares. The
Funds, however, may not pay for shareholder services under the Investor Plan.
Aggregate payments under the Investor Plan are calculated daily and paid monthly
at a rate or rates set from time to time by each Fund, provided that the annual
rate may not exceed .10% of the average daily net asset value of the Investor
Shares of the Fund.

The fees under the Investor Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
Plan.

Nations Funds and Stephens may suspend or reduce payments under the Investor
Plan at any time, and payments are subject to the continuation of the Investor
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor Plan.

In addition, the Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to the Investor Shares. Pursuant to the Servicing
Plan the Funds may pay Servicing Agents that have entered into a Servicing
Agreement with Nations Funds for certain shareholder support services that are
provided by the Servicing Agents. Payments under the Funds' Servicing Plan may
not exceed .25% of the average daily net asset value of each Fund's Investor
Shares. The shareholder services provided by Servicing Agents include, but are
not limited to (i) aggregating and processing purchase and redemption requests
for Investor Shares from Customers and transmitting net purchase and redemption
orders to Stephens, the Transfer Agent or their respective agents; (ii)
providing Customers with a service that invests the assets of their accounts in
Investor Shares pursuant to specific or preauthorized instructions; (iii)
processing dividend and distribution payments from a Fund on behalf of
Customers; (iv) providing information periodically to Customers showing their
positions in Investor Shares; (v) arranging for bank wires; and (vi) providing
general shareholder liaison services. The fees payable to Selling Agents are
used primarily to compensate or reimburse Selling Agents for providing sales
support assistance in connection with the sale of Investor Shares to Customers,
which may include forwarding sales literature and advertising providing by
Nations Funds to Customers.

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

How Dividends And Distributions Are Made; Tax Information

The amount of dividends payable on Trust Class Shares will be more than the
dividends payable on Liquidity Class, Adviser Class and Market Class Shares
because of the distribution and/or shareholder servicing expenses charged to
such shares.

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Dividends distributed from Nations Municipal Reserves' net investment income
attributable to its tax-exempt securities will not be subject to Federal income
tax in the hands of its shareholders. However, such distributions may be subject
to the Federal alternative minimum tax, and, to the extent that Nations
Municipal Reserves earns taxable income or realizes capital gains, distributions
to shareholders from such sources will be subject to Federal income tax. See
"Taxes -- Additional Considerations for Nations Municipal Reserves" in the SAI.
Distributions of net investment income by Nations Municipal Reserves may be
subject to state and local income taxes, even though a substantial portion of
such distributions may be derived from interest on tax-exempt obligations,
which,if realized directly by shareholders, would be exempt from such income
taxes.

Appendix A -- Portfolio Securities

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Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. Pursuant to line of credit arrangements with BNY, the
Funds may borrow primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities.

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

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In addition, certain of the Funds may acquire "stand-by commitments" from banks
or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.

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from the revenues of similar projects, a Fund will be subject to the unique
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.

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gage 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.

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.

Appendix B -- Description Of Ratings

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

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

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

To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.

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

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the long-term risks appear somewhat larger than in Aaa securities.