As filed with the Securities and Exchange Commission
on June 4, 1999
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. 27 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 28 |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
|_| 60 days after filing pursuant to Rule 485(a), or
|X| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to Rule 485(b), or
|_| on (date) pursuant to Rule 485(a)(1)
|_| 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
The Registrant is filing this Post-Effective Amendment No. 27 to the
Trust's Registration Statement for the purpose of registering five new shell
funds and filing the Statement of Additional Information.
<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
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Part A
Item No. Prospectus
- -------- ----------
1. Front and Back Cover Pages .............................. Front and Back Cover Pages
2. Risk/Return Summary: Investments, Risks
and Performance.......................................... About this Prospectus
3. Risk/Return Summary: Fee Tables.......................... About the Funds; Financial
Highlights
4. Investment Objectives, Principal
Investment Strategies, and Related Risks................. About the Funds; Other Important
Information
5. Management's Discussion of Fund
Performance............................................. About the Funds
6. Management, Organization, and
Capital Structure....................................... What's Inside; About the Funds;
How the Funds Are Managed;
About your Investment
7. Shareholder Information.................................. About the Funds; About your
Investment
8. Distribution Arrangements................................ Information for Investors
9. Financial Highlights Information......................... Financial Highlights; About the
Funds
Part B
Item No.
- --------
10. Cover Page and Table of Contents........................ Cover Page and Table of Contents
11. Fund History............................................ Introduction
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1
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12. Description of the Fund and Its
Investments and Risks....................................... Additional Information on Portfolio
Investments
13. Management of the Funds..................................... Trustees And Officers; Investment
Advisory, Administration, Custody Transfer Agency,
Shareholder Servicing and Distribution Agreements
14. Control Persons and Principal
Holders of Securities....................................... Not Applicable
15. Investment Advisory and Other Services...................... Investment Advisory,
Administration, Custody, Transfer Agency, Shareholder
Servicing And Distribution Agreements
16. Brokerage Allocation and Other Practices.................... Portfolio Transactions and
Brokerage--General Brokerage Policy
17. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration, Custody, Transfer
Custody, Transfer Agency, Shareholder Servicing And
Distribution Agreements
18. Purchase, Redemption and Pricing
of Shares................................................... Net Asset Value -- Purchases
And Redemptions; Distributor
19. Taxation of the Fund........................................ Additional Information Concerning
Taxes
20. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency Shareholder
Servicing And Distribution Agreements; Distributor
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2
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21. Calculation of Performance Data............................. Additional Information on
Performance
22. Financial Statements........................................ Independent Accountant and
Reports
Part C
Item No. Other Information
- -------- -----------------
Information required to be included in
Part C is set forth under the appropriate
Item, so numbered, in Part C of this
Document
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3
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(logo)
Prospectus
August 1, 1999
EQUITY FUNDS
Nations Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
INTERNATIONAL FUNDS
Nations International Value Fund
Nations International Equity Fund
Nations Emerging Markets Fund
o Primary A Shares
The Securities and Exchange Commission (SEC)
has not approved or disapproved these
securities or determined if this prospectus is
truthful or complete. Any representation to the
contrary is a criminal offense.
[box:]
NOT FDIC-INSURED May lose value No bank guarantee
NF-00000-8/99
1
<PAGE>
About this prospectus
TERMS USED IN THIS PROSPECTUS
In this prospectus, WE, US and OUR refer to the Nations Funds Family (Nations
Funds). Some other important terms we've used may be new to you. These are
printed in ITALICS where they first appear in a section and are described in
TERMS USED IN THIS PROSPECTUS.
You'll find TERMS USED IN THIS PROSPECTUS on page 0
This booklet, which is called a prospectus, tells you about some of Nations
Funds equity and international funds. Please read it carefully, because it
contains information that's designed to help you make informed investment
decisions.
Each fund group has different objectives and strategies:
o equity funds invest primarily in EQUITIES SECURITIES of U.S. companies
o international funds invest primarily in equity securities of companies in
countries around the world
Equity securities have the potential to provide you with higher returns than
many other kinds of investments, but they also tend to have the highest risk.
Foreign securities also involve special risks not associated with investing in
the U.S. stock market, which you need to be aware of before you invest.
In every case, there's a risk that you'll lose money or you may not earn as much
as you expect.
FOR MORE INFORMATION
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes detailed information about each Fund's
investments, policies, performance and management, among other things. The SAI
is legally considered to be part of this prospectus because it's incorporated by
reference. Turn to the back cover to find out how you can get a copy of the SAI.
CHOOSING THE RIGHT FUNDS FOR YOU
The equity and international funds all focus on long-term growth. They may be
suitable for you if:
o you're investing for longer-term investment goals
o they form part of a balanced portfolio.
o you want to try to protect your portfolio against a loss of buying power that
inflation can cause over time.
They may not be suitable for you if:
o you are not prepared or are unable to bear the risks associated with equity
securities, including foreign securities
o you have short-term investment goals
o you are looking for a regular stream of income
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page 0.
If you have any questions about the Funds, please call us at 1-800-765-2668 or
contact your financial adviser.
2
<PAGE>
What's inside
About the Funds
BANC OF AMERICA ADVISORS, INC.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to each of the
Funds. BAAI is responsible for the overall management and supervision of the
investment management of each Fund. BAAI and Nations Funds have engaged
sub-advisers, which are responsible for the day-to-day investment decisions for
each of the Funds.
You'll find more about BAAI
and the sub-advisers starting
on page 0.
EQUITY FUNDS
Nations Marsico Focused Equities Fund..................................00
Sub-adviser: Marsico Capital Management, LLC
Nations Marsico Growth & Income Fund...................................00
Sub-adviser: Marsico Capital Management, LLC
INTERNATIONAL FUNDS
Nations International Value Fund.......................................00
Sub-adviser: Brandes Investment Partners, L.P.
Nations International Equity Fund......................................00
Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management
(N.A.), Inc., Putnam Investment Management, Inc.
Nations Emerging Markets Fund..........................................00
Sub-adviser: Gartmore Global Partners
OTHER IMPORTANT INFORMATION............................................00
HOW THE FUNDS ARE MANAGED..............................................00
The equity funds focus on long-term growth by investing primarily in EQUITY
SECURITIES.
The international funds focus on long-term growth by investing primarily in
equity securities of companies in countries around the world.
About your investment
INFORMATION FOR INVESTORS..............................................00
Buying, selling and exchanging shares.............................00
Distributions and taxes...........................................00
FINANCIAL HIGHLIGHTS...................................................00
TERMS USED IN THIS PROSPECTUS..........................................00
WHERE TO FIND MORE INFORMATION.................................back cover
3
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About the equity funds
ABOUT THE SUB-ADVISER
The Fund does not have its own investment adviser or sub-adviser because it's a
"feeder" fund. Feeder funds invest all of their assets in another fund, which is
called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is the
portfolio manager and makes the day-to-day investment decisions for the Master
Portfolio.
You'll find more about Marsico Capital and Mr. Marsico on page 0.
NATIONS MARSICO FOCUSED EQUITIES FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations Marsico Focused Equities
Master Portfolio (the Master Portfolio). The Master Portfolio has the same
investment objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in COMMON
STOCKS of large companies. The Master Portfolio, which is NON-DIVERSIFIED,
generally holds a core position of 20 to 30 of common stocks.
The Master Portfolio may invest up to 25% of its assets in FOREIGN securities.
It may also up to 10% of its assets in other kinds of securities, which are
described in the SAI.
WHAT IS A FOCUSED FUND?
A focused fund concentrates its investments in a small number of companies with
earnings that are believed to have the potential to grow significantly. This
Fund focuses on large, established and well-known U.S. companies.
Because a focused fund holds fewer investments than other kinds of funds, this
Fund can have greater price swings than more diversified funds. It may earn
relatively higher returns when one of its investments performs well, or
relatively lower returns when an investment performs poorly.
You'll find more about other risks of investing in this Fund on page 0 and in
the SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some
of the following characteristics:
o Products, markets or technologies in flux that can result in extraordinary
growth
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the markets
of a single country can also help the Master Portfolio reduce risk.
o They are moving with, not against, the major social, economic and cultural
shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment.
This process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition. The process also includes a "bottom-up"
analysis that considers individual company characteristics like commitment
to research, market franchise and quality of management.
4
<PAGE>
RISKS AND OTHER THINGS TO CONSIDER
Nations Marsico Focused Equities Fund has the following general risks:
o INVESTMENT STRATEGY RISK - This Master Portfolio is considered to be
"non-diversified" because it may hold fewer securities than other kinds of
equity funds. This increases the risk that its value could go down
significantly if one or more of its investments performs poorly. The value of
this Portfolio will tend to have greater price swings than the value of more
diversified equity funds. There also is a risk that the value of the Master
Portfolio's investments will not rise as high as Marsico Capital expects, or
will fall. The Master Portfolio may become a diversified fund by limiting the
investments in which more than 5% of its total assets are invested.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds, like
the stock market in general, can rise or fall over short as well as long
periods.
o FOREIGN INVESTMENT RISK - Although the Master Portfolio may only invest up to
25% of its assets in foreign securities, it can be affected by the risks of
foreign investing. Foreign investments may be riskier than U.S. investments
because of political and economic conditions, changes in currency exchange
rates, foreign controls on investment, difficulties in selling securities and
lack of financial information. Withholding taxes also may apply to some
foreign investments.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and investors can buy
shares of the Master Portfolio. All investors in the Master Portfolio invest
under the same terms and conditions as the Fund and pay a proportionate share
of the Master Portfolio's expenses. Other investors in the Master Portfolio
will have different shares prices and returns than the Fund because they all
have different sales charges, and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if the
Board of Trustees of Nations Institutional Reserves believes it's in the best
interest of the Fund to do so. It is unlikely that this would happen, but if
it did, the Fund's portfolio could be less diversified and therefore less
liquid. The Fund might also have to pay brokerage, tax or other charges.
5
<PAGE>
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary A Shares. These
returns do not reflect deductions of account fees, if any, and would be lower if
they did.
YEAR BY YEAR TOTAL RETURN (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
For information about the performance of other equity funds managed by Thomas
Marsico, see HOW THE FUNDS ARE MANAGED.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary A Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary A
Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
ONGOING FEES AND EXPENSES DEDUCTED FROM THE FUND'S ASSETS
(THE FUND'S OPERATING EXPENSES)(1)
Management fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1) These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2) The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000.
The figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
6
<PAGE>
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary A Shares $000 $000 $000 $000
7
<PAGE>
NATIONS MARSICO GROWTH & INCOME FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital with a limited emphasis on income.
ABOUT THE SUB-ADVISER
The Fund does not have its own investment adviser or sub-adviser because it's a
"feeder" fund. Feeder funds invest all of their assets in another fund, which is
called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is the
portfolio manager and makes the day-to-day investment decisions for the Master
Portfolio.
You'll find more about Marsico Capital and Mr. Marsico on page 0.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations Marsico Growth & Income Master
Portfolio (the Master Portfolio). The Master Portfolio has the same
investment objective as the Fund.
The Master Portfolio normally invests up to 75% of its assets in EQUITY
SECURITIES that are believed to have significant growth potential and at
least 25% of its assets in equity and FIXED INCOME SECURITIES that are
believed to have income potential. The Master Portfolio generally holds 35
to 50 securities and emphasizes large-capitalization COMMON STOCKS.
Marsico Capital may shift assets between growth and income securities based
on its analysis of market, financial and economic conditions. It will
emphasize growth securities if it believes they will provide better returns
than the yields available or expected on income-producing securities. If
Marsico Capital believes it appropriate to do so, it may also reduce
investments in growth securities to 25% of the Master Portfolio's assets.
WHY INVEST IN A GROWTH AND INCOME FUND?
Growth and income funds can invest in a mix of equity and fixed income
securities. This can help reduce volatility and provides the fund with the
flexibility to shift among securities that offer the potential for higher
returns.
While this Fund invests in a wide range of companies and industries, it holds
fewer securities than other kinds of funds. This means it can have greater price
swings than more diversified funds. It may earn relatively higher returns when
one of its investments performs Since income is a part of the Master Portfolio's
investment objective, well, or relatively lower Marsico Capital may consider a
company's anticipated dividends when returns when an investment performs poorly.
Since income is a part of the Master Portfolio's investment objective, Marsico
Capital may consider a company's anticipated dividends when selecting equity
securities. The Master Portfolio is not, however, designed to produce a
consistent level of income. It may also find opportunities for capital growth
from fixed income securities because of expected changes in interest rates,
credit rating, currency exchange rates or other factors.
The Master Portfolio may hold up to 25% of its assets in FOREIGN SECURITIES. It
may also invest up to 10% of its assets in other kinds of securities, which are
described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some
of the following characteristics:
o Products, markets or technologies in flux that can result in extraordinary
growth
8
<PAGE>
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the markets
of a single country can also help the Master Portfolio reduce risk.
o They are moving with, not against, the major social, economic and cultural
shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a disciplined
analytical process to assess its potential as an investment. This process
includes a "top-down" analysis that takes into account economic factors like
interest rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis that considers
individual company characteristics like commitment to research, market franchise
and quality of management.
You'll find more about other risks of investing in this Fund on page 0 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations Marsico Growth & Income Fund has the following general risks:
o INVESTMENT STRATEGY RISK - Marsico Capital uses an investment strategy that
tries to identify equities with growth or income potential. There is a risk
that the value of these investments will not rise as high as Marsico Capital
expects, or will fall.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds, like
the stock market in general, can rise or fall over short as well as long
periods.
o INTEREST RATE RISK - The prices of the Master Portfolio's fixed income
securities will tend to fall when interest rates rise and to rise when
interest rates fall. In general, fixed income securities with longer terms
tend to fall more in value when interest rates rise than fixed income
securities with shorter terms.
o CREDIT RISK - The Master Portfolio could lose money if the issuer of a fixed
income security is unable to pay interest or repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is generally
not a factor for securities that are issued or backed by the U.S. government.
Fixed income securities with the lowest investment grade rating or that aren't
investment grade are more speculative in nature than securities with higher
ratings, and they tend to be more sensitive to credit risk, particularly
during a downturn in the economy.
9
<PAGE>
o FOREIGN INVESTMENT RISK - Although the Master Portfolio may only invest up
to 25% of its assets in foreign securities, it can be affected by the risks of
foreign investing. Foreign investments may be riskier than U.S. investments
because of political and economic conditions, changes in currency exchange
rates, foreign controls on investment, difficulties in selling securities and
lack of financial information. Withholding taxes also may apply to some
foreign investments.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and investors can buy
shares of the Master Portfolio. All investors in the Master Portfolio invest
under the same terms and conditions as the Fund and pay a proportionate share
of the Master Portfolio's expenses. Other investors in the Master Portfolio
will have different shares prices and returns than the Fund because they all
have different sales charges, and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if the
Board of Trustees of Nations Institutional Reserves believes it's in the best
interest of the Fund to do so. It is unlikely that this would happen, but if
it did, the Fund's portfolio could be less diversified and therefore less
liquid. The Fund might also have to pay brokerage, tax or other charges.
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary A Shares. These
returns do not reflect deductions of account fees, if any, and would be lower if
they did.
YEAR BY YEAR TOTAL RETURN (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
For information about the performance of other equity funds managed by Thomas
Marsico, see HOW THE FUNDS ARE MANAGED.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary A Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an
index of 500 common stocks chosen by Standard & Poor's on a
statistical basis.
10
<PAGE>
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary A
Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
ONGOING FEES AND EXPENSES DEDUCTED FROM THE
FUND'S ASSETS (THE FUND'S OPERATING EXPENSES)(1)
Management fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1) These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2) The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000.
The figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary A Shares $000 $000 $000 $000
11
<PAGE>
About the international funds
NATIONS INTERNATIONAL VALUE FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in equity
securities of foreign issuers, including emerging markets countries.
ABOUT THE SUB-ADVISER Brandes Investment Partners, L.P. (Brandes) is this Fund's
sub-adviser. Brandes' [Large Cap Investment Committee] makes the day-to-day
investment decisions for the Fund.
You'll find more about Brandes on page 0.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in foreign companies
anywhere in the world that have a market capitalization of more than $1 billion
at the time of investment. The Fund typically invests in at least three
countries other than the United States at any one time.
Securities the Fund invests in are principally COMMON STOCKS, PREFERRED
STOCKS, CONVERTIBLE SECURITIES, shares of closed-end investment companies,
and DEPOSITARY RECEIPTS.
WHAT IS THE GRAHAM AND DODD APPROACH TO INVESTING?
Benjamin Graham is widely regarded as the founder of this classic value approach
to investing and a pioneer in modern security analysis. In his 1934 book,
SECURITY ANALYSIS, co-written by David Dodd, Graham introduced the idea that
stocks should be chosen by identifying the "true" long-term--or intrinsic--
value of a company based on measurable data.
The team follows this approach, looking at each stock as though it's a business
that's for sale. By buying stocks at what it believes are favorable prices, the
Fund looks for the potential for growth over the business cycle.
It may also may invest up to 10% of its assets in other kinds of securities,
which are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Fund. The team invests in a company
when its current price appears to be below its true long-term--or intrinsic
- --value.
The team uses FUNDAMENTAL ANALYSIS to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management record,
as well its industry and its position in the industry. This analysis includes a
review of company reports, filings with the SEC, computer databases, industry
publications, general and business publications, brokerage firm research reports
and other information sources, as well as interviews with company management.
The Fund may invest in foreign currency exchange contracts to convert
foreign currencies to and from the U.S. dollar, and to hedge against changes
in foreign currency exchange rates.
12
<PAGE>
LIMITS ON INVESTMENTS To help manage risk, the Fund puts limits on its
investments. These limits apply at the time an investment is made:
o The Fund will normally invest no more than 5% of its assets in a single
security.
o It may not invest more than:
o 20% of its assets in a single country or industry, or, if higher,
o 150% of the weighting of a single country or industry in the MSCI EAFE Index
(to a maximum of 25% of its assets in a single industry, other than
U.S. government securities).
o It generally may not invest more than 20% of its assets in emerging markets or
developing countries.
You'll find more about other risks of investing in this Fund on page 0 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations International Value Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks it believes are
undervalued or out of favor with the expectation that these stocks will
eventually rise in value. There is a risk that the value of these investments
will not rise as high or as quickly as the manager expects, or will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in currency
exchange rates, foreign controls on investment, difficulties in selling
securities and lack of financial information. Withholding taxes also may apply
to some foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the stock
market in general, can rise or fall over short as well as long periods.
o FUTURES RISK - This Fund may use FUTURES CONTRACTs to convert currencies and
to hedge against changes in foreign currency exchange rates. There is always a
risk that this could result in losses, reduce returns, increase transaction
costs and increase the Fund's volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
International Value Fund of Nations Fund, Inc. voted to vest this authority to
make such investment decision in the sole discretion of the Trustees of Nations
Institutional Reserves, and such investment may be made without further approval
of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary A Shares. These
returns do not reflect deductions of account fees, if any, and would be lower if
they did.
YEAR BY YEAR TOTAL RETURN (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
13
<PAGE>
For information about the performance of other international funds managed by
Brandes, see HOW THE FUNDS ARE MANAGED.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary A Shares 0.00% 0.00% 0.00%
MSCI EAFE Index 0.00% 0.00% 0.00%
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary A
Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
ONGOING FEES AND EXPENSES DEDUCTED FROM THE FUND'S ASSETS
(THE FUND'S OPERATING EXPENSES)
Management fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses1 0.00%
(1) The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000.
The figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary A Shares $000 $000 $000 $000
14
<PAGE>
NATIONS INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in EQUITY
SECURITIES of non-United States companies in Europe, Australia, the Far East and
other regions, including developing countries.
ABOUT THE SUB-ADVISER The Fund does not have its own investment adviser or
sub-adviser because it's a "feeder" fund. Feeder funds invest all of their
assets in another fund, which is called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations International Equity Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in established
companies located in at least three countries other than the United States. The
portfolio managers select countries, including emerging market or developing
countries, and companies they believe have the potential for growth.
The Master Portfolio is a "multiple manager" fund, which means that it's managed
by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO
Global Asset Management (N.A.), Inc. (Invesco) and Putnam Investment Management
Inc. (Putnam) each manage approximately one-third of the assets of the
Portfolio. Five portfolio managers from Gartmore, Invesco's International Equity
Portfolio Management Team and Putnam's Core International Equity Group make the
day-to-day investment decisions for their portion of the Portfolio.
You'll find more about Gartmore, Invesco and Putnam on page .
WHY INVEST IN AN INTERNATIONAL EQUITY FUND?
International equity funds invest in a diversified portfolio of companies
located in markets throughout the world. These companies can offer investment
opportunities that are not available in the U.S.
Investing internationally can also help reduce the risks associated with a
portfolio of purely domestic investments, because foreign economies can have
different market cycles, and are affected by different factors than the U.S.
economy. However, investing internationally also involves special risks not
associated with investing in the U.S. stock market.
Securities the Master Portfolio invests in are principally COMMON STOCKS, but
the Master Portfolio may also invest in equity interests in foreign investment
funds or trusts, real estate investment trust securities and DEPOSITARY
RECEIPTS.
The Master Portfolio may invest up to 35% of its assets in CONVERTIBLE
SECURITIES, PREFERRED STOCKS, bonds, notes, and other FIXED INCOME securities,
including Eurodollar and foreign government securities. It also may invest up to
10% of its assets in other kinds of securities, which are described in the SAI.
The Master Portfolio is a "multiple manager" fund. It has three portfolio
managers, and each is responsible for managing approximately one-third of the
Portfolio's assets. The managers all have different, but complementary,
investment styles:
o Gartmore combines "top down," regional allocation with a stock
selection process that focuses on investing in securities when
growth is likely to be higher, or sustained longer, than other
investors expect
o Invesco uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for long-term growth
o Putnam is a "core manager," focusing on stable, long-term
investments, rather than growth or value stocks. It combines
"bottom up" stock selection with "top down" country allocation
15
<PAGE>
This strategy is based on the belief that having multiple managers may result in
better performance and more stable returns over time.
The Master Portfolio may invest in foreign currency exchange contracts to
convert foreign currencies to and from the U.S. dollar, and to hedge against
changes in foreign currency exchange rates.
You'll find more about other risks of investing in this Fund on page and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations International Equity Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The portfolio managers choose stocks
they believe have the potential for long-term growth. There is a
risk that the value of these investments will not rise as high
expected, or will fall. There is also a risk that the Master
Portfolio's multiple manager strategy may not result in better
performance or more stable returns.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, foreign controls on
investment, difficulties in selling securities and lack of
financial information. Withholding taxes also may apply to some
foreign investments.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio
holds, like the stock market in general, can rise or fall over
short as well as long periods.
o FUTURES RISK - The Master Portfolio may use FUTURES CONTRACTS to
convert currencies and to hedge against changes in foreign
currency exchange rates. There is always a risk that this could
result in losses, reduce returns, increase transaction costs and
increase the Master Portfolio's volatility.
o INTEREST RATE RISK - The prices of the Master Portfolio's fixed
income securities will tend to fall when interest rates rise. In
general, fixed income securities with longer terms tend to fall
more in value when interest rates rise than fixed income
securities with shorter terms.
16
<PAGE>
o CREDIT RISK - The Master Portfolio could lose money if the issuer
of a fixed income security is unable to pay interest and repay
principal when it's due. Credit risk usually applies to most fixed
income securities, but is generally not a factor for securities
that are issued or backed by the U.S. government. Fixed income
securities with the lowest investment grade rating or that aren't
investment grade are more speculative in nature than securities
with higher ratings, and they tend to be more sensitive to credit
risk, particularly during a downturn in the economy.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and
investors can buy shares of the Master Portfolio. All investors in
the Master Portfolio invest under the same terms and conditions as
the Fund and pay a proportionate share of the Master Portfolio's
expenses. Other investors in the Master Portfolio will have
different shares prices and returns than the Fund because they all
have different sales charges, and ongoing administrative and other
expenses.
The Fund can withdraw its entire investment from the Master Portfolio if the
Board of Trustees of Nations Institutional Reserves believes it's in the best
interest of the Fund to do so. It is unlikely that this would happen, but if it
did, the Fund's portfolio could be less diversified and therefore less liquid.
The Fund might also have to pay brokerage, tax or other charges.
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
YEAR BY YEAR TOTAL RETURN (%)
[bar chart here]
The bar chart shows you the performance of the Fund's Primary A Shares. These
returns do not reflect deductions of account fees, if any, and would be lower if
they did.
Best and worst quarterly returns during this period:
Best: quarter 19 : %
Worst: quarter 19 : %
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary A Shares % % %
MSCI EAFE Index % % %
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
17
<PAGE>
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
WHAT IT COSTS TO INVEST IN THE FUND
Primary A
Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
ONGOING FEES AND EXPENSES DEDUCTED FROM THE FUND'S ASSETS (THE FUND'S OPERATING
EXPENSES)(1)
Management fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1) These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary A Shares $ $ $ $
18
<PAGE>
NATIONS EMERGING MARKETS FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East and India.
ABOUT THE SUB-ADVISER
Gartmore is this Fund's sub-adviser. Philip Ehrmann, the head of the Gartmore
Emerging Markets team, makes the day-to-day investment decisions for the Fund.
You'll find more about Gartmore on page .
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in companies in
emerging markets or developing countries. The Fund intends to invest in
securities of companies in at least three of these countries at any one time.
WHAT'S AN EMERGING MARKET?
This Fund considers a country to be an emerging market if:
o the International Finance Corporation has defined it as an
emerging market
o it has a low-to-middle income economy according to the World Bank,
or
o it's listed as developing in World Bank publications.
There are over 25 countries that currently meet these criteria, including
Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador, Greece,
Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland,
Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
You'll find more about other risks of investing in this Fund on page and in
the SAI.
The Fund normally invests in COMMON STOCKS, PREFERRED STOCKS, CONVERTIBLE
SECURITIES, equity interests in foreign investment funds or trusts, and
DEPOSITARY RECEIPTS. The Fund may invest up to 10% of its assets in other kinds
of securities, which are described in the SAI.
The portfolio manager looks for emerging markets that have the potential for
strong economic growth, and tries to avoid emerging markets that might be
politically or economically risky.
The manager starts with approximately 800 companies in the most promising
markets, and
o uses fundamental research to select 80 to 100 stocks in 15 or more
countries, looking at earnings growth, financial resources,
marketability, and other factors
o may visit companies to confirm the corporate and industry factors
that led to a stock's selection as a potential investment
o regularly reviews the Fund's investments to determine whether
companies are meeting expected return targets and whether their
fundamental financial health has changed.
The Fund may invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in foreign
currency exchange rates.
19
<PAGE>
RISKS AND OTHER THINGS TO CONSIDER
Nations Emerging Markets Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The manager invests in securities of
companies in emerging markets, which have high growth potential,
but can be more volatile than securities in more developed
markets. There is a risk that the value of these investments will
not rise as high as the manager expects, or will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than
U.S. investments because of political and economic conditions,
changes in currency exchange rates, foreign controls on
investment, difficulties in selling securities and lack of
financial information. Withholding taxes also may apply to some
foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like
the stock market in general, can rise or fall over short as well
as long periods.
o FUTURES RISK - This Fund may use FUTURES CONTRACTS to convert
risks of investing in this currencies and to hedge against changes
in foreign currency exchange Fund on page o and in the rates.
There is always a risk that this could result in losses, reduce
SAI. returns, increase transaction costs and increase the Fund's
volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
Emerging Markets Fund of Nations Fund Portfolios, Inc. voted to vest this
authority to make such investment decision in the sole discretion of the
Trustees of Nations Institutional Reserves, and such investment may be made
without further approval of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A LOOK AT THE FUND'S PERFORMANCE
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary A Shares. These
returns do not reflect deductions of account fees, if any, and would be lower if
they did.
YEAR BY YEAR TOTAL RETURN (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: quarter 1900: %
Worst: quarter 1900: %
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary A Shares 0.00% 0.00% 0.00%
MSCI EAFE Index 0.00% 0.00% 0.00%
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
20
<PAGE>
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary A
Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load)
when you buy your shares none
Maximum deferred sales charge (load)
when you sell your shares none
ONGOING FEES AND EXPENSES DEDUCTED FROM THE FUND'S ASSETS
(THE FUND'S OPERATING EXPENSES)
Management fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses1 0.00%
(1)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. There is no
Fund after deducting waivers guarantee that these waivers and/or reimbursements
will continue after this date.
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary A Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the
table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all of your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary A Shares $000 $000 $000 $000
21
<PAGE>
Other important information
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page . The following are
some other risks and information you should consider before you invest:
o YOUR INVESTMENT IN THESE FUNDS IS NOT A BANK DEPOSIT AND IS NOt
INSURED OR GUARANTEED BY BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION (BANK OF AMERICA), THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. YOUR
INVESTMENT MAY LOSE MONEY.
o AFFILIATES OF BANK OF AMERICA ARE PAID FOR THE SERVICES THEy
PROVIDE TO THE FUNDS.
o CHANGING INVESTMENT OBJECTIVES AND POLICIES - The investment
objective and certain investment policies of any Fund can be
changed without shareholder approval. Other investment policies
may be changed only with shareholder approval.
o HOLDING OTHER KINDS OF INVESTMENTS - The Funds may hold
investments that aren't part of their principal investment
strategies. Please refer to the SAI for more information.
o FOREIGN INVESTMENT RISK - Nations Marsico Focused Equities Fund
and Nations Marsico Growth & Income Fund can invest up to 25% of
their assets in foreign securities. The international funds can
invest all of their assets in foreign securities. Funds that
invest in foreign securities may be affected by changes in
currency exchange rates and the costs of converting currencies;
foreign government controls on foreign investment, repatriation of
capital, and currency and exchange; foreign taxes; inadequate
supervision and regulation of some foreign markets; volatility
from a lack of LIQUIDITY; different settlement practices or
delayed settlements in some markets; difficulty getting complete
or accurate information about foreign companies; less strict
accounting, auditing and financial reporting standards than those
in the U.S.; political, economic or social instability; and
difficulty enforcing legal rights outside the U.S.
Securities issued by companies in developing or emerging market
countries, like those in Eastern Europe, the Pacific
22
<PAGE>
Basin and the Far East, may be more sensitive to the risks of
foreign investing. In particular, these countries may experience
instability resulting from rapid social, political and economic
development. Many of these countries are dependent on
international trade, which makes them sensitive to world commodity
prices and economic downturns in other countries. Some emerging
countries have a higher risk of currency devaluation, and some
countries may experience long periods of high inflation or rapid
changes in inflation rates.
o INVESTING DEFENSIVELY - A Fund may temporarily hold investments
that are not part of its investment objective or its principal
investment strategies to try to protect it during a market or
economic downturn or because of political or other conditions. A
Fund may not achieve its investment objective while it is
investing defensively.
o PORTFOLIO TURNOVER - A Fund that replaces -- or turns over -- more
than 100% of its securities in a year may have higher brokerage
costs than a Fund that is trading less frequently. This may also
result in larger distributions of CAPITAL GAINS to shareholders.
All of the Funds generally buy securities for capital
appreciation, investment income, or both, and do not engage in
short-term trading. You'll find the portfolio turnover rate for
each Fund in the FINANCIAL HIGHLIGHTS.
o PREPARING FOR THE YEAR 2000 - The year 2000 is an issue for
organizations, companies and entities around the world that rely
on computer systems to process date-related information. Computer
systems that cannot read a four-digit year may not be able to
calculate and process information on or after January 1, 2000.
All of the Funds' primary service providers have confirmed that
they have been working to make the necessary changes to their
systems, and that they expect them to be adapted in time. There is
no guarantee, however, that their computer systems will ready by
the year 2000. If their computer systems are not ready in time,
there could be a negative effect on Fund operations.
A Fund's performance could also be affected if securities it holds
decrease in value because of year 2000 issues. Funds that invest
in foreign securities may be at greater risk because the computer
systems of many foreign issuers, governments or other entities may
not be ready for the year 2000.
23
<PAGE>
How the Funds are managed
BANC OF AMERICA ADVISORS, INC.
One Bank of America Plaza
Charlotte, North Carolina
28255
INVESTMENT ADVISER
BAAI is the investment adviser to the equity and international funds, as well as
to over 60 other mutual fund portfolios in the Nations Funds Family.
BAAI is a registered investment adviser. It's a wholly owned subsidiary of Bank
of America, which is owned by Bank of America Corporation. Nations Funds pays
BAAI an annual fee for its investment advisory services. The fee is calculated
daily based on the average net assets of each Fund and is paid monthly. BAAI
uses part of this money to pay investment sub-advisers for the services they
provide to Nations Funds.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds until
July 31, 2000. You'll find a discussion of any waiver and/or reimbursement in
the Fund descriptions. There is no assurance that BAAI will continue to waive
and/or reimburse any fees and/or expenses after this date.
The following chart shows the maximum advisory fees BAAI can receive, along with
the actual advisory fees it received during the Funds' last fiscal period (April
1, 1998 to March 31, 1999), after waivers and reimbursements:
Annual investment advisory fee, as a % of average daily net assets
MAXIMUM ACTUAL FEE PAID
ADVISORY FEE LAST FISCAL YEAR
Nations Marsico Focused Equities Fund 0.00 0.00
Nations Marsico Growth & Income Fund 0.00 0.00
Nations Strategic Equity Fund 0.00 0.00
Nations International Value Fund 0.00 0.00
Nations International Equity Fund 0.00 0.00
Nations Emerging Markets Fund 0.00 0.00
24
<PAGE>
INVESTMENT SUB-ADVISERS
Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Funds. These sub-advisers function under
the supervision of the Boards of Directors/Trustees of Nations Funds and BAAI.
MARSICO CAPITAL MANAGEMENT, LLC
1200 17th Street
Suite 1300
Denver, Colorado
80202
MARSICO CAPITAL MANAGEMENT, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas F.
Marsico in September 1997. It is a registered investment adviser, specializing
in large capitalization stocks, and currently has [$65] billion in assets under
management.
Marsico Management Holdings, LLC, a wholly owned subsidiary of Bank of America,
owns 50% of the equity of Marsico Capital.
Marsico Capital is the investment sub-adviser to:
o Nations Marsico Focused Equities Master Portfolio
o Nations Marsico Growth & Income Master Portfolio
THOMAS F. MARSICO, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment decisions
for these Portfolios. Before forming the company, Mr. Marsico was an executive
vice president and portfolio manager at Janus Capital Corporation. He has more
than 20 years of experience as a securities analyst and portfolio manager.
PERFORMANCE OF OTHER EQUITY FUNDS MANAGED BY THOMAS MARSICO Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund have been in
operation since December 31, 1997, so they have a short performance history. The
tables below are designed to show you how similar equity funds managed by Thomas
Marsico performed in the past.
The Janus Twenty Fund has an investment objective, policies and strategies that
are very similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed
the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full
discretionary authority for selecting investments for that fund, which had
approximately $6 billion in net assets on August 11, 1997.
25
<PAGE>
The table below shows the returns for the Janus Twenty Fund compared with the
S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of
fees and expenses, except for any account level charges, and assume all
dividends and distributions have been reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997
Janus Twenty Fund S&P 500
(%) (%)
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of
Mr. Marsico's management
(January 31, 1988 to
August 7, 1997) 23.38 18.20
This information is designed to demonstrate the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Janus Growth and Income Fund has an investment objective, policies and
strategies that are very similar to Nations Marsico Growth & Income Fund. Mr.
Marsico managed the Janus Growth and Income Fund from is inception on May 31,
1991 through August 11, 1997. He had full discretionary authority for selecting
investments for that fund, which had approximately $1.7 billion in net assets on
August 11, 1997.
The table below shows the returns for the Janus Growth and Income Fund compared
with the S&P 500 for the period ending August 7, 1997. The S&P 500 is a broadly
based index of 500 large U.S. companies. The returns reflect deductions of fees
and expenses, except for any account level charges, and assume all dividends and
distributions have been reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF AUGUST 7, 1997
Janus Growth
and Income
Fund S&P 500
(%) (%)
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of
Mr. Marsico's management
(May 31, 1991 to
August 7, 1997) 21.19 18.59
This information is designed to demonstrate the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
26
<PAGE>
BRANDES INVESTMENT PARTNERS, L.P.
12750 High Bluff Drive
San Diego, California
92130
BRANDES INVESTMENT PARTNERS, L.P.
Founded in 1974, Brandes is an investment advisory firm with 37 investment
professionals who manage more than $20 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to build
wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' [Large Cap Investment Committee] is responsible for making
the day-to-day investment decisions for the Portfolio.
PERFORMANCE OF OTHER INTERNATIONAL EQUITY FUNDS AND ACCOUNTS MANAGED BY BRANDES
Nations International Value Fund has been in operation since [ ], so it has a
short performance history. The table below is designed to show you how a similar
composite of international equity accounts managed by Brandes performed over a
longer period in the past.
The Brandes composite has an investment objective, policies and strategies that
are similar to Nations International Value Fund.
The table below shows the returns for the Brandes composite compared with the
MSCI EAFE INDEX for the periods ending December 31, 1998. The MSCI EAFE Index is
an index of over 1,100 stocks from 21 developed markets in Europe, Australia,
New Zealand and Asia. The index reflects the relative size of each market. The
returns reflect deductions of fees and expenses, except for any account level
charges, and assume all dividends and distributions have been reinvested.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
one year 0.00 0.00
three years 0.00 0.00
five years 0.00 0.00
since inception
(0, 0 , 0) 0.00 0.00
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
1998 0.00 0.00
1997 20.00 1.78
1996 16.34 6.05
1995 13.75 11.21
1994 (2.98) 7.78
1993 40.86 32.56
1992 6.28 (12.17)
1991 40.17 12.13
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Brandes composite includes Brandes International Equity Fund and
international equity accounts managed by Brandes. The accounts don't pay the
same expenses that mutual funds pay and aren't subject to the diversification
rules, tax restrictions and investment limits under the 1940 Act or Subchapter M
of the Internal Revenue Code. Returns could have been lower if the composite had
been subject to these expenses and regulations. The aggregate returns of the
accounts in the composite don't reflect the returns of any particular account of
Brandes.
27
<PAGE>
GARTMORE GLOBAL PARTNERS
One Bank of America Plaza
Charlotte, North Carolina
28255
GARTMORE GLOBAL PARTNERS
Gartmore is a global asset manager dedicated to serving the needs of U.S. based
investors. Gartmore was formed in 1995 as a registered investment adviser and
manages more than $0 billion in assets.
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of Bank of America, and Gartmore U.S.
Limited, an indirect, wholly owned subsidiary of Gartmore Investment Management
plc, a UK holding company for a leading UK-based international fund management
group of companies.
Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International Equity
Master Portfolio and is the investment sub-adviser to Nations Emerging Markets
Fund.
Nations International Equity Master Portfolio is co-managed by five portfolio
managers:
PHILIP EHRMANN has been responsible since June 1998 for the Master Portfolio's
investments in developing countries. He has also been the principal portfolio
manager for Nations Emerging Markets Fund since he joined Gartmore in 1995, and
is head of the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr.
Ehrmann was the director of emerging markets for Invesco in London. He began his
career in 1981 as an institutional stock broker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an institutional
salesman before joining Invesco in 1984. Mr. Ehrmann graduated from the London
School of Economics with a degree in Economics, Industry and Trade.
SEOK TEOH has been responsible since June 1998 for the Master Portfolio's
investments in Asia. She has also been principal portfolio manager of Nations
Pacific Growth Fund since it was formed in June 1995. Ms. Teoh has been with
Gartmore since 1990 as the London based manager of its Far East Team.
Previously, she managed four equity funds for Rothschild Asset Management in
Tokyo and Singapore, and was also responsible for Singaporean and Malaysian
equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh is native
to Singapore and is fluent in Mandarin and Cantonese. She received an Economics
degree from the University of Durham.
MARK FAWCETT has been responsible since June 1998 for the Master Portfolio's
investments in Japan. He is also senior investment manager for the Gartmore
Japanese Equities Team and has specific responsibility for large stock research.
Before joining Gartmore in 1991, he worked on the Far East desk of Provident
Mutual managing funds invested in Japan. He graduated from Oxford University in
1986 with an honors degree in Mathematics and Philosophy.
STEPHEN JONES has been responsible for the Master Portfolio's investments in
Europe since 1998. He is also head of Gartmore European Equities. Mr. Jones
joined Gartmore in 1994 and was appointed head of the European equity team in
1995. He began his career at The Prudential in 1984, and became a European
equities investment manager in 1987, focusing on France, Belgium and
Switzerland. He graduated from Manchester University in 1984 with an honors
degree in Economics.
28
<PAGE>
STEPHEN WATSON has been responsible since June 1998 for allocating the Master
Portfolio's assets among the various regions in which it invests, and for
determining the Master Portfolio's investments in regions not covered by the
other portfolio managers. He was the Master Portfolio's sole portfolio manager
from February 1995 to June 1998. Mr. Watson joined Gartmore in 1993 as a global
fund manager, and is the chief investment officer of Gartmore Global Partners
and a member of Gartmore's global policy group. Before joining Gartmore, he was
a director and global fund manager with James Capel Fund Managers, London, as
well as client service manager for international clients. He was in Capel-Cure
Myers' portfolio management division from 1980 to 1987, and began his career in
1976 with Samuel Motagu. He is a member of the Securities Institute.
Nations Emerging Markets Fund is managed by PHILIP EHRMANN, the head of Gartmore
Emerging Markets Team. He has managed the Fund since 1995. He also co-manages
Nations International Equity Master Portfolio.
INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC.
1315 Peachtree Street, N.E.
Atlanta, Georgia
30309
INVESCO GLOBAL ASSET MANAGEMENT (N.A), INC.
Invesco is a division of INVESCO Global, a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company, which is also located in London.
Invesco is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Invesco's International Equity Portfolio Management Team is
responsible for making the day-to-day investment decisions for its portion of
the Master Portfolio.
PUTNAM INVESTMENT MANAGEMENT, INC.
One Post Office Square
Boston, Massachusetts
02109
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam is a wholly owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Master
Portfolio.
29
<PAGE>
STEPHENS INC.
111 Center Street
Little Rock, Arkansas
72201
FIRST DATA INVESTOR SERVICES GROUP, INC.
One Exchange Place
Boston, Massachusetts
02109
OTHER SERVICE PROVIDERS
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer. Stephens may pay service fees or commissions to companies that
assist investors in buying shares of the Funds.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee for their services, plus certain out of pocket expenses. The fee is
paid monthly, and is calculated as an annual percentage of the average daily net
assets of the Funds, as follows:
Domestic equity funds 0.23%
International funds 0.22%
First Data Investor Services Group, Inc. (First Data) is the transfer agent for
the Funds' shares. Its responsibilities include processing purchases, sales and
exchanges, calculating and paying distributions, keeping shareholder records,
preparing account statements and providing customer service.
30
<PAGE>
About your investment
Buying, selling and exchanging shares
Financial institutions and intermediaries may have different limits, charge
other fees, or have different policies for buying, selling and exchanging shares
than those described in this prospectus.
In general, only the following categories of investors can buy Primary A Shares:
o financial institutions and intermediaries, including Bank of
America, its affiliates, and other financial institutions, and
fee-based investment advisers and financial planners, for their
own accounts or [fiduciary] client accounts
o employee benefit plans
o charitable foundations
o endowments
o other Funds in the Nations Funds Family
The minimum initial investment for each investor of record is $250,000.
Investments made on behalf of client accounts of a single financial institution
or intermediary are aggregated for the purposes of this minimum initial
investment amount. There is no minimum for additional investments.
Investors don't pay any sales charges when they buy, sell or exchange Primary A
Shares.
Please contact your financial adviser, or call us at 1-800-765-2668 if you have
any questions about how to place an order.
A business day is any day that the New York Stock Exchange (NYSE) is open. A
business day ends at the close of regular trading on the New York Stock Exchange
(NYSE), usually at 4:00 p.m. Eastern time. If the NYSE closes early, the
business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
HOW SHARES ARE PRICED
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the net asset value
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class.
International markets may be open on days when U.S. markets are closed. The
value of foreign securities owned by a Fund could change on days when Fund
shares may not be bought or sold.
VALUING SECURITIES IN A FUND
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, we'll base the price of a security on its fair
market value. We use the amortized cost method, which approximates market value,
to value short-term investments maturing in 60 days or less.
31
<PAGE>
Good Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
HOW ORDERS ARE PROCESSED
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, First Data or their agents before the end of a business
day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive
that day's net asset value per share. Orders received after the end of a
business day will receive the next business day's net asset value per share. The
business day that applies to your order is also called the TRADE DATE. We may
refuse any order. If this happens, we'll return any money we've received to the
investor.
32
<PAGE>
BUYING SHARES
Here are some general rules for buying shares:
o Investors buy Primary A Shares at net asset value per share.
o If we don't receive payment within three business days of
receiving an order, we'll refuse the order and notify the
investor. We'll return any payment for orders that we refuse or do
not receive to the investor.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for ensuring that we
receive payment on time. Telephone orders may be difficult to
complete during periods of significant economic or market change.
o Shares purchased are recorded on the books of the Fund. We don't
issue certificates.
o Financial institutions and intermediaries are responsible for
recording the beneficial ownership of the shares of their clients,
and for reporting this ownership on account statements they send
to their clients.
SELLING SHARES
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire to
investors within three business days after Stephens, First Data or
their agents receive the order.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for depositing the sale
proceeds to their accounts on time.
o Under certain circumstances allowed under the 1940 Act, we can pay
investors in securities or other property when they sell shares,
or delay payment of the sale proceeds for up to seven days.
We may sell shares:
o if the value of an investor's account after the shares are sold
falls below $500. We'll provide 60 days notice in writing if we're
going to do this
o if a financial institution or intermediary tells us to sell the
shares for a client under arrangements it has made with its
clients
o under certain other circumstances allowed under the 1940 Act.
33
<PAGE>
EXCHANGING SHARES
Investors can sell shares of a Fund to buy shares of another Nations Fund. This
is called an exchange, and may be appropriate if investment goals or tolerance
for risk change.
You should make sure you understand the investment objectives and policies of
the Fund you're exchanging into. Please read its prospectus carefully.
Here's how exchanges work:
o Investors can exchange Primary A Shares of a Fund for Primary A
Shares of all other Nations Funds.
o The rules for buying a Fund, including any minimum investment
requirements, apply to exchanges into that Fund.
o Exchanges can only be made into a Fund that is legally sold in the
investor's state of residence.
o Exchanges can generally only be made into a Fund that is accepting
investments.
o We may limit the number of exchanges that can be made within a
specified period of time.
o We may change or cancel the right to make an exchange by giving
the amount of notice required by regulatory authorities (currently
60 days for a material change or cancellation), unless we are
required to do so because of unusual circumstances.
o Shares that are held in certificate form cannot be exchanged until
First Data has received the certificate and deposited the shares
to the investor's account.
o Telephone orders may be difficult to complete during periods of
significant economic or market change.
34
<PAGE>
DISTRIBUTIONS AND TAXES
THE POWER OF COMPOUNDING
You can choose to reinvest your distributions in additional shares of the same
Fund and class.
Reinvesting your distributions buys you more shares of a Fund -- which lets you
take advantage of the potential for compound growth.
Putting the money you earn back into your investment means it, in turn, may earn
even more money. Over time, the power of compounding has the potential to
significantly increase the value of your investment.
ABOUT DISTRIBUTIONS
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and
dividends paid on COMMON STOCKS.
o A fund can also have CAPITAL GAINS if the value of its investments
increases. If a fund sells an investment at a gain, the gain is
realized. If a fund continues to hold the investment, any gain is
unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gains to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gains to their
shareholders so the Funds won't have to pay any income tax. When a Fund makes
this kind of a payment, it's split equally among all shares, and is called a
distribution.
All of the Funds distribute any net realized capital gains, including net
short-term capital gains, at least once a year.
The frequency of distributions of net investment income vary by Fund:
FREQUENCY OF INCOME
FUND DISTRIBUTIONS
Nations Marsico Focuses Equities Fund quarterly
Nations Marsico Growth & Income Fund quarterly
Nations International Value Fund annually
Nations International Equity Fund quarterly
Nations Emerging Markets Fund quarterly
A distribution is paid based on the number of shares you hold on the day before
the distribution is declared. Shares of the Funds are eligible to receive
distributions from the TRADE DATE of the purchase, as long as it's at least one
day before a distribution is declared, up to the day before the shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made, the
net asset value per share of the share class is reduced by the amount of the
distribution.
35
<PAGE>
We'll automatically reinvest distributions in additional shares of the same Fund
unless you tell us you want to receive your distributions in cash.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you want to
receive your distributions you sell all of your shares, we'll pay any
distribution that applies to those shares in cash within five business days
after the sale was made.
If you buy shares of a Fund shortly before it makes a distribution, you will, in
effect, receive part of your purchase back in the distribution, which is subject
to tax. Similarly, if you buy shares of a Fund that holds securities with
unrealized capital gains, you will, in effect, receive part of your purchase
back if and when the Fund sells those securities, and realizes and distributes
the gain. This distribution is also subject to tax. Some Funds have built up, or
have the potential to build up, high levels of unrealized capital gains.
This information is a summary of how federal income taxes may affect your
investment in the Funds. It is not intended as a substitute for careful tax
planning. You should consult with your own tax advisor about your situation,
including any foreign, state and local taxes that may apply.
For more information about taxes, please see the SAI.
HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, including net foreign currency gains and
any excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income. Corporate shareholders may be
able to exclude a portion of these distributions from their taxable income.
Distributions of net capital gain (generally the excess of net long-term capital
gain over net short-term capital loss), generally are taxable to you as net
capital gains. Individual, trust and estate shareholders may be taxed on these
distributions at preferential rates.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one year
and distributed in January of the following year will be taxable as if they had
been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
36
<PAGE>
o WITHHOLDING TAX
We're required by federal law to withhold tax of 31% on any distributions and
sale proceeds paid to you (including amounts deemed to be paid for "in kind"
redemptions and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number
(TIN) and haven't certified that the TIN is correct and
withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN
listed on your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup
withholding.
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also required by federal law to withhold tax on distributions paid to some
foreign shareholders.
o FOREIGN TAXES
Mutual funds that maintain most of their portfolio in foreign securities -- like
the international funds -- have special tax considerations. You'll generally be
required to: o include in your gross income your proportional amount of foreign
taxes paid by the fund
o treat this amount as foreign taxes you paid directly
o either deduct this amount when calculating your income, or subject
to certain conditions and limitations, claim this amount as a
foreign tax credit against your federal income tax liability
In general, you can claim up to $300 ($600 if you're filing jointly) as a
foreign tax credit.
o TAXATION OF REDEMPTIONS AND EXCHANGES
Your redemptions (including redemptions "in kind") and exchanges of Fund shares
will usually result in a taxable capital gain or loss to you, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges) and the amount you paid (or are deemed to have paid) for them.
37
<PAGE>
Financial highlights
The financial highlights table is designed to help you understand how the Funds
have performed for the past five years. Certain information reflects financial
results for a single Fund share. The total investment return line indicates how
much an investment in the Fund would have earned, assuming all dividends and
distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. You'll find the
auditor's report and Nations Funds financial statements in the SAI. Please see
the back cover to find out how you can get a copy.
38
<PAGE>
Nations Marsico Focused Equities Fund
For a Share outstanding throughout the period
<TABLE>
<CAPTION>
Period ended
Primary A Shares* 03/31/98#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) ( 0.01)
Net realized and unrealized gains on investments 2.14
Net increase in net asset value from operations 2.13
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.13
Total return(++) 21.30%
==================================================== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $8,808
Ratio of operating expenses to average net assets 1.52%+(a)
Ratio of net investment loss to average net assets ( 0.30)%+
Portfolio turnover rate 25%
Ratio of expenses to average net assets without
waivers and/or expense reimbursements 1.52%+(a)
</TABLE>
* Nations Marsico Focused Equities Fund Primary A Shares commenced operations on
December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
# Per share net investment income has been calculated using the monthly average
share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense reimbursements,
was 0.01%.
Nations Marsico Growth & Income Fund
For a Share outstanding throughout the period
<TABLE>
<CAPTION>
Period ended
Primary A Shares* 03/31/98#
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 2.02
Net increase in net asset value from operations 2.03
Distributions:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.03
Total return++ 20.30%
==================================================== =======
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,517
Ratio of operating expenses to average net assets 1.09%+(a)
Ratio of net investment income/loss to average net
assets 0.38%+
Portfolio turnover rate 22%
Ratio of expenses to average net assets without
waivers and/or expense reimbursements 1.97%+(a)
</TABLE>
* Nations Marsico Growth & Income Fund Primary A commenced operations on
December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income has been calculated using the monthly average
share method.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers and/or expense reimbursements,
was 0.01%.
<PAGE>
Nations International Equity Fund
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Year ended Year ended Period ended
Primary A Shares 03/31/98# 03/31/97# 03/31/96(a)#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.13 $ 13.50 $ 11.75
Net investment income/(loss) 0.11 0.08 0.07
Net realized and unrealized gain/(loss) on
investments 1.95 0.11 1.80
Net increase/(decrease) in net asset value from
operations 2.06 0.19 1.87
Distributions:
Dividends from net investment income ( 0.17) ( 0.11) ( 0.06)
Distributions in excess of net investment income ( 0.05) ( 0.00)** ( 0.04)
Distributions from net realized capital gains ( 0.16) ( 0.42) ( 0.02)
Distributions in excess of net realized capital
gains -- ( 0.03) --
Total dividends and distributions ( 0.38) ( 0.56) ( 0.12)
Net asset value, end of period $ 14.81 $ 13.13 $ 13.50
Total return++ 16.06% 1.32% 16.01%
================================================== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $885,329 $976,855 $849,731
Ratio of operating expenses to average net
assets 1.14% 1.16% 1.17%+
Ratio of net investment income/(loss) to average
net assets 0.76% 0.62% 0.65%+
Portfolio turnover rate 64% 36% 26%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.14% 1.16% 1.18%+
<CAPTION>
Year ended Year ended Year ended Period ended
Primary A Shares 05/31/95# 05/31/94# 05/31/93# 05/31/92*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.06 $ 10.60 $ 10.40 $ 10.00
Net investment income/(loss) 0.14 0.09 0.09 0.08
Net realized and unrealized gain/(loss) on
investments ( 0.20) 1.44 0.21 0.36
Net increase/(decrease) in net asset value from
operations ( 0.06) 1.53 0.30 0.44
Distributions:
Dividends from net investment income ( 0.03) ( 0.05) ( 0.08) ( 0.04)
Distributions in excess of net investment income -- -- -- --
Distributions from net realized capital gains ( 0.12) ( 0.02) ( 0.02) --
Distributions in excess of net realized capital
gains ( 0.10) -- -- --
Total dividends and distributions ( 0.25) ( 0.07) ( 0.10) ( 0.04)
Net asset value, end of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Total return++ ( 0.46)% 14.37% 3.14% 4.43%+++
================================================== ======== ======== ======== ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $572,940 $401,559 $118,873 $83,970
Ratio of operating expenses to average net
assets 1.03% 1.17% 1.30% 1.33%+
Ratio of net investment income/(loss) to average
net assets 1.17% 0.75% 1.03% 1.81%+
Portfolio turnover rate 92% 39% 41% 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.04% 1.18% 1.32% 1.43%+
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share net investment income/(loss) has been calculated using the monthly
average share method.
## Amount represents less than 0.01%. (a) Fiscal year end changed to March 31.
Prior to this, the fiscal year end was May 31.
<PAGE>
Nations International Value Fund
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Period ended Year ended Period ended
Primary A Shares* 05/15/98 11/30/97 11/30/96**(a)
<S> <C> <C> <C>
Net asset value, beginning of period $ 13.17 $ 11.29 $ 10.00
Income from investment operations:
Net investment income 0.09 0.09 0.06
Net realized and unrealized gains on securities 2.56 1.91 1.29
Total income from investment operations 2.65 2.00 1.35
Less dividends and distributions:
Dividends from net investment income -- ( 0.09) ( 0.06)
Distributions in excess of net investment income -- ( 0.01) --
Distributions from net realized gains on securities ( 0.29) ( 0.02) --
Total dividends and distributions ( 0.29) ( 0.12) ( 0.06)
Net change in net asset value 2.36 1.88 1.29
Net asset value, end of period $ 15.53 $ 13.17 $ 11.29
Total return 20.54%++ 17.75% 13.47%++
====================================================== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (in 000's) $119,412 $54,277 $17,528
Ratio of expenses to average net assets 1.25%+ 1.21% 0.00%+
Ratio of net investment income to average net
assets 2.06%+ 0.89% 1.99%+
Ratio of expenses to average net assets*** 1.26% 1.21% 3.46%+
Ratio of net investment income (loss) to average net
assets*** 2.05%+ 0.89% ( 1.47%)+
Portfolio turnover rate 88%++ 29% 50%++
</TABLE>
* Primary A Shares of Nations International Value Fund were formerly
Institutional Shares of the Emerald International Equity Fund.
** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
*** During the period, certain fees were voluntarily reduced and/or reimbursed.
If such reimbursements had not occurred, the ratios would have been as
indicated.
(a) Effective August 19, 1996, Brandes became the Fund's investment sub-adviser.
+ Annualized.
++ Not annualized.
<PAGE>
Nations Emerging Markets Fund
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Year ended Year ended Period ended
Primary A Shares 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.41 $ 10.34 $ 10.00
Net investment income/(loss) 0.04 0.01 ( 0.03)
Net realized and unrealized gain/(loss) on
investments ( 0.76) 1.21 0.37
Net increase/(decrease) in net asset value from
operations ( 0.72) 1.22 0.34
Distributions:
Dividends from net investment income ( 0.09) ( 0.02) --
Distributions in excess of net investment income -- ( 0.07) 0.00**
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions ( 0.09) ( 0.15) 0.00**
Net asset value, end of period $ 10.60 $ 11.41 $ 10.34
Total return++ ( 6.39)% 11.97% 3.42%
=================================================== ======= ======= ========
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $73,797 $76,483 $47,560
Ratio of operating expenses to average net assets 1.57% 1.74% 2.13%+
Ratio of net investment income to average net
assets 0.36% 0.13% ( 0.38)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share net investment income/loss has been calculated using the monthly
average share method.
<PAGE>
Terms used in this prospectus
ASSET-BACKED SECURITY - a debt security that gives you a share in a pool of
assets that is backed by loan paper, accounts receivable or other assets,
including mortgages, generally issued by banks, credit card companies or other
lenders. Some securities may be issued or guaranteed by the U.S. government or
by any of its agencies, authorities or instrumentalities. Asset-backed
securities make periodic payments, which may be interest or a combination of
interest and a portion of the principal of the underlying assets.
BARRA INDEX(1)- an index of approximately 340 common stocks from the S&P 500
that have low price-to-book ratios. These stocks generally tend to have higher
yields and less volatility than other stocks included in the S&P 500.
BARRA SMALLCAP INDEX(1)- an index of approximately 375 common stocks from the
S&P 600 that have low price-to-book ratios. These stocks generally tend to have
higher yields and less volatility than other stocks included in the S&P 600.
CAPITAL GAIN (CAPITAL LOSS) - the difference between the purchase price of a
security and its selling price. You REALIZE a capital gain (or loss) when you
sell a security for more (or less) than you paid for it.
COMMON STOCK - an equity security that represents part ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
CONVERTIBLE DEBT -- a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
CONVERTIBLE SECURITY -- a security that can be exchanged for common stock (or
another type of security) at a specified rate and date. Convertible securities
include convertible debt, rights and warrants.
DEBT SECURITY - when you invest in a debt security, you are lending your money
to a governmental body or company (the issuer) to help fund their operations or
major projects. The issuer pays interest at a specified rate on a specified date
or dates, and repays the principal when the security matures. Short-term debt
securities include money market instruments such as treasury bills. Long-term
debt securities include fixed income securities such as government and corporate
bonds, and mortgage-backed and asset-backed securities.
39
<PAGE>
DEPOSITARY RECEIPTS - securities representing securities of companies based in
countries other than the U.S. Examples include ADRs, ADSs, GDRs and EDRs.
DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
EQUITY SECURITY - an investment that gives you part ownership in a company.
Equity securities (or "equities") include common and preferred stock, rights and
warrants.
FIXED INCOME SECURITY - an intermediate to long-term debt security that matures
in more than one year.
FOREIGN SECURITY - a debt or equity security issued by a foreign government or
corporation.
FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
FUTURES CONTRACT - a contract to buy or sell an asset or an index of securities
at a specified price on a specified date. The price is set through a futures
exchange.
INVESTMENT GRADE - a debt security that has been given a medium to high credit
rating (BBB or higher) by a nationally recognized statistical rating
organization (NRSRO), based on the issuer's ability to pay interest and repay
principal on time. A debt security that has not been rated, but is believed to
be of comparable quality, may also be considered investment grade. Please see
the SAI for more information about credit ratings.
LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
40
<PAGE>
MONEY MARKET INSTRUMENT - a short-term debt security that matures in one year or
less. Money market instruments include U.S. Treasury obligations, U.S.
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements and municipal securities.
MORTGAGE-BACKED SECURITY - a debt security that gives you a share in (or is
backed by) a pool of residential mortgages issued by the U.S. government or by
financial institutions. The underlying mortgages may be guaranteed by the U.S.
government or one of its agencies, authorities or instrumentalities.
Mortgage-backed securities make monthly payments, which are a combination of
interest and a portion of the principal of the underlying mortgages.
MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size of
each market.
MUNICIPAL DEBT SECURITY - a debt security issued by state or local governments
or governmental authorities to pay for public projects and services. "General
obligations" are backed by the issuer's full taxing and revenue-raising powers.
"Revenue securities" depend on the income earned by a specific project or
authority, like road or bridge tolls, user fees for water or revenues from a
utility. Interest income is exempt from federal income taxes and is generally
exempt from state taxes if you live in the state that issued the security. If
you live in the municipality that issued the security, interest income may also
be exempt from local taxes.
NON-DIVERSIFIED - a fund that holds fewer securities than other kinds of funds.
This increases the risk that its value could go down significantly if one or
more of its investments performs poorly. Non-diversified funds tend to have
greater price swings than more diversified funds.
OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
PREFERRED STOCK - an equity security that gives you an ownership right in a
company, on a different basis than common stock. Preferred stock generally pays
a fixed annual dividend. If the company goes bankrupt, preferred shareholders
generally receive their share of the company's remaining assets before common
shareholders and after bondholders and other creditors.
41
<PAGE>
PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of the
value of a company.
QUANTITATIVE ANALYSIS - an analysis of financial information about a company or
security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
REAL ESTATE INVESTMENT TRUST (REIT) - a managed portfolio of real estate
investments which may include office buildings, apartment complexes, hotels and
shopping malls, and real-estate-related loans or interests.
RIGHT - a temporary privilege allowing investors who already own a common stock
to buy additional shares directly from the company at a specified price or
formula.
S&P 500(1)- Standard & Poor's 500 Composite Stock Price Index, an index of 500
common stocks chosen by S&P on a statistical basis.
S&P 600(1)- Standard & Poor's SmallCap 600 Index, is designed to be a benchmark
of the performance of small capitalization stocks. It includes 600 U.S. stocks
chosen by S&P based on market size, liquidity and industry group.
SENIOR SECURITY - a debt security that allows holders to receive their share of
a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
TRADE DATE - the effective date of a purchase, sale or exchange transaction, or
other instructions sent to us. The trade date is determined by the day and time
we receive the order or instructions in a form that's acceptable to us.
U.S. GOVERNMENT OBLIGATION - a debt security 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.
42
<PAGE>
WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1)S&P and BARRA have not reviewed any stock included in the S&P 500, S&P 600,
BARRA Index or BARRA SmallCap Index for its investment merit. S&P and BARRA
determine and calculate their indexes independently of the Funds and are not a
sponsor or affiliate of the Funds. S&P and BARRA give no information and make no
statements about the suitability of investing in the Funds or the ability of
their indexes to track stock market performance. S&P and BARRA make no
guarantees about the indexes, any data included in them and the suitability of
the indexes or their data for any purpose. "Standard and Poor's," "S&P 500" and
"S&P 600" are trademarks of the McGraw-Hill Companies, Inc.
43
<PAGE>
Where to find more information
You'll find more information about the Equity Funds and International Funds in
the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports contain information about Fund investments
and performance, the financial statements and the auditor's reports. The annual
report also includes a discussion about the market conditions and investment
strategies that had a significant effect on each Fund's performance during the
period covered.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional information about the Funds and their policies. The
SAI is legally part of this prospectus (it's incorporated by reference). A copy
has been filed with the SEC.
You can obtain a free copy of these documents by contacting Nations Funds:
By telephone: 1-800-765-2668
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nationsbank.com/nationsfund
If you prefer, you can write or call the SEC's Public Reference Room and ask
them to mail you copies of these documents. They'll charge you a fee for this
service. You can also download them from the SEC's website or visit the Public
Reference Section and copy the documents while you're there.
Public Reference Section of the SEC
Washington, DC 20549-6009
1-800-SEC-0330
http://www.sec.gov
SEC file numbers:
[Nations Fund Trust, 811-04305]
44
<PAGE>
[LOGO APPEARS HERE]
PROSPECTUS
August 1, 1999
EQUITY FUNDS
Nations Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
INTERNATIONAL FUNDS
Nations International Value Fund
Nations International Equity Fund
Nations Emerging Markets Fund
o Primary B Shares
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
[box:]
NOT FDIC-INSURED May lose value No bank guarantee
NF-00000-8/99
<PAGE>
Terms used in this prospectus
In this prospectus, WE, US and OUR refer to the Nations Funds Family
(Nations Funds). Some other important terms we've used may be new to you.
These are printed in ITALICS where they first appear in a section and are
described in TERMS USED IN THIS PROSPECTUS.
You'll find TERMS USED IN THIS PROSPECTUS on page*
For more information
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes detailed information about each Fund's
investments, policies, performance and management, among other things. The
SAI is legally considered to be part of this prospectus because it's
incorporated by reference. Turn to the back cover to find out how you can
get a copy of the SAI.
ABOUT THIS PROSPECTUS
This booklet, which is called a prospectus, tells you about some of Nations
Funds equity and international funds. Please read it carefully, because it
contains information that's designed to help you make informed investment
decisions.
Each fund group has different objectives and strategies:
o equity funds invest primarily in EQUITIES SECURITIES of U.S. companies
o international funds invest primarily in equity securities of companies in
countries around the world
Equity securities have the potential to provide you with higher returns than
many other kinds of investments, but they also tend to have the highest risk.
Foreign securities also involve special risks not associated with investing in
the U.S. stock market, which you need to be aware of before you invest.
In every case, there's a risk that you'll lose money or you may not earn as
much as you expect.
Choosing the right funds for you
o The equity and international funds all focus on long-term growth. They may
be suitable for you if:
o you're investing for longer-term investment goals
o they form part of a balanced portfolio.
you want to try to protect your portfolio against a loss of buying power that
inflation can cause over time.
They may not be suitable for you if:
o you are not prepared or are unable to bear the risks associated with equity
securities, including foreign securities
o you have short-term investment goals
o you are looking for a regular stream of income
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page*.
2
<PAGE>
If you have any questions about the Funds, please call us at 1-800-621-2192 or
contact your financial adviser.
3
<PAGE>
ABOUT THE FUNDS
BANC OF AMERICA ADVISORS, INC.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to each of
the Funds. BAAI is responsible for the overall management and supervision of
the investment management of each Fund. BAAI and Nations Funds have engaged
sub-advisers, which are responsible for the day-to-day investment decisions
for each of the Funds.
YOU'LL FIND MORE ABOUT BAAI AND THE SUB-ADVISERS STARTING ON
PAGE 00.
The equity funds focus on long-term growth by investing primarily in EQUITY
SECURITIES.
The international funds focus on long-term growth by investing primarily in
equity securities of companies in countries around the world.
WHAT'S INSIDE
EQUITY FUNDS
Nations Marsico Focused Equities Fund................................... 00
Sub-adviser: Marsico Capital Management, LLC
Nations Marsico Growth & Income Fund.................................... 00
Sub-adviser: Marsico Capital Management, LLC
INTERNATIONAL FUNDS
Nations International Value Fund........................................ 00
Sub-adviser: Brandes Investment Partners, L.P.
Nations International Equity Fund....................................... 00
Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management
(N.A.), Inc., Putnam Investment Management, Inc.
Nations Emerging Markets Fund........................................... 00
Sub-adviser: Gartmore Global Partners
OTHER IMPORTANT INFORMATION............................................. 00
HOW THE FUNDS ARE MANAGED............................................... 00
ABOUT YOUR INVESTMENT
INFORMATION FOR INVESTORS............................................... 00
Buying, selling and exchanging shares................................... 00
How selling agents are paid............................................. 00
Distributions and taxes................................................. 00
FINANCIAL HIGHLIGHTS.................................................... 00
TERMS USED IN THIS PROSPECTUS........................................... 00
4
<PAGE>
WHERE TO FIND MORE INFORMATION.................................. back cover
5
<PAGE>
ABOUT THE EQUITY FUNDS
- --------------------------------------------------------------------------------
ABOUT THE SUB-ADVISER
THE FUND DOES NOT HAVE ITS OWN INVESTMENT ADVISER OR SUB-ADVISER BECAUSE IT'S
A "FEEDER" FUND. FEEDER FUNDS INVEST ALL OF THEIR ASSETS IN ANOTHER FUND,
WHICH IS CALLED A "MASTER FUND" OR "MASTER PORTFOLIO."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is
the portfolio manager and makes the day-to-day investment decisions for the
Master Portfolio.
YOU'LL FIND MORE ABOUT MARSICO CAPITAL AND MR. MARSICO ON PAGE*.
What is a focused fund?
A focused fund concentrates its investments in a small number of companies
with earnings that are believed to have the potential to grow significantly.
This Fund focuses on large, established and well-known U.S. companies.
Because a focused fund holds fewer investments than other kinds of funds,
this Fund can have greater price swings than more diversified funds. It may
earn relatively higher returns when one of its investments performs well, or
relatively lower returns when an investment performs poorly.
NATIONS MARSICO FOCUSED EQUITIES FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations Marsico Focused Equities Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in COMMON
STOCKS of large companies. The Master Portfolio, which is NON-DIVERSIFIED,
generally holds a core position of 20 to 30 of common stocks.
The Master Portfolio may invest up to 25% of its assets in FOREIGN SECURITIES.
It may also up to 10% of its assets in other kinds of securities, which are
described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:
o Products, markets or technologies in flux that can result in extraordinary
growth
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Master Portfolio reduce
risk.
o They are moving with, not against, the major social, economic and cultural
shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition. The process also includes a "bottom-up"
analysis that considers
6
<PAGE>
individual company characteristics like commitment to research, market
franchise and quality of management.
You'll find more about other risks of investing in this Fund on page 00 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations Marsico Focused Equities Fund has the following general risks:
o INVESTMENT STRATEGY RISK - This Master Portfolio is considered to be "non-
diversified" because it may hold fewer securities than other kinds of equity
funds. This increases the risk that its value could go down significantly if
one or more of its investments performs poorly. The value of this Portfolio
will tend to have greater price swings than the value of more diversified
equity funds. There also is a risk that the value of the Master Portfolio's
investments will not rise as high as Marsico Capital expects, or will fall.
The Master Portfolio may become a diversified fund by limiting the
investments in which more than 5% of its total assets are invested.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds, like
the stock market in general, can rise or fall over short as well as long
periods.
o FOREIGN INVESTMENT RISK - Although the Master Portfolio may only invest up
to 25% of its assets in foreign securities, it can be affected by the risks
of foreign investing. Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties in
selling securities and lack of financial information. Withholding taxes also
may apply to some foreign investments.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and investors can buy
shares of the Master Portfolio. All investors in the Master Portfolio invest
under the same terms and conditions as the Fund and pay a proportionate
share of the Master Portfolio's expenses. Other investors in the Master
Portfolio will have different shares prices and returns than the Fund
because they all have different sales charges, and ongoing administrative
and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if the
Board of Trustees of Nations Institutional Reserves believes it's in the
best interest of the Fund to do so. It is unlikely that this would happen,
but if it did, the
7
<PAGE>
Fund's portfolio could be less diversified and therefore less liquid. The
Fund might also have to pay brokerage, tax or other charges.
A LOOK AT THE FUND'S PERFORMANCE
LOOKING AT PAST PERFORMANCE CAN GIVE YOU AN IDEA OF A FUND'S VOLATILITY FROM
YEAR TO YEAR AND ITS AVERAGE RETURNS OVER TIME. PERFORMANCE WILL VARY BASED
ON MANY FACTORS, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S
HOLDINGS AND THE FUND'S EXPENSES. A FUND'S PAST PERFORMANCE IS NO GUARANTEE
OF HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary B Shares. These
returns do not reflect deductions of account fees, if any, and would be lower
if they did.
Year by year total return (%) [bar chart here]
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
Best: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
For information about the performance of other equity funds managed by Thomas
Marsico, see HOW THE FUNDS ARE MANAGED.
Average annual total return as of December 31, 1998
1 year 5 years 10 years
Primary B Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
There are two kinds of fees -- sales charges you pay directly, and ongoing
fees and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary B
Shares
Fees you pay directly
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
Ongoing fees and expenses deducted from the Fund's assets
(THE FUND'S OPERATING EXPENSES) (1)
Management fees 0.00%
Service fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2)The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000. The
figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
8
<PAGE>
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
Example
This example is designed to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary B Shares $000 $000 $000 $000
9
<PAGE>
ABOUT THE SUB-ADVISER
THE FUND DOES NOT HAVE ITS OWN INVESTMENT ADVISER OR SUB-ADVISER BECAUSE IT'S
A "FEEDER" FUND. FEEDER FUNDS INVEST ALL OF THEIR ASSETS IN ANOTHER FUND,
WHICH IS CALLED A "MASTER FUND" OR "MASTER PORTFOLIO."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is the
portfolio manager and makes the day-to-day investment decisions for the Master
Portfolio.
YOU'LL FIND MORE ABOUT MARSICO CAPITAL AND MR. MARSICO ON PAGE 00.
Why invest in a growth and income fund?
Growth and income funds can invest in a mix of equity and fixed income
securities. This can help reduce volatility and provides the fund with the
flexibility to shift among securities that offer the potential for higher
returns.
While this Fund invests in a wide range of companies and industries, it
holds fewer securities than other kinds of funds. This means it can have
greater price swings than more diversified funds. It may earn relatively
higher returns when one of its investments performs well, or relatively
lower returns when an investment performs poorly.
NATIONS MARSICO GROWTH & INCOME FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital with a limited emphasis on income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations Marsico Growth & Income Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests up to 75% of its assets in EQUITY
SECURITIES that are believed to have significant growth potential and at
least 25% of its assets in equity and FIXED INCOME SECURITIES that are
believed to have income potential. The Master Portfolio generally holds 35
to 50 securities and emphasizes large-capitalization COMMON STOCKS.
Marsico Capital may shift assets between growth and income securities based
on its analysis of market, financial and economic conditions. It will
emphasize growth securities if it believes they will provide better returns
than the yields available or expected on income-producing securities. If
Marsico Capital believes it appropriate to do so, it may also reduce
investments in growth securities to 25% of the Master Portfolio's assets.
Since income is a part of the Master Portfolio's investment objective,
Marsico Capital may consider a company's anticipated dividends when
selecting equity securities. The Master Portfolio is not, however, designed
to produce a consistent level of income. It may also find opportunities for
capital growth from fixed income securities because of expected changes in
interest rates, credit rating, currency exchange rates or other factors.
The Master Portfolio may hold up to 25% of its assets in FOREIGN SECURITIES.
It may also invest up to 10% of its assets in other kinds of securities, which
are described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may
not be recognized by other investors, focusing on companies that have some of
the following characteristics:
o Products, markets or technologies in flux that can result in
extraordinary growth
10
<PAGE>
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Master Portfolio reduce
risk.
o They are moving with, not against, the major social, economic and
cultural shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a
disciplined analytical process to assess its potential as an investment. This
process includes a "top-down" analysis that takes into account economic
factors like interest rates, inflation, the regulatory environment, the
industry and global competition. The process also includes a "bottom-up"
analysis that considers individual company characteristics like commitment to
research, market franchise and quality of management.
You'll find more about other risks of investing in this Fund on page 00 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations Marsico Growth & Income Fund has the following general risks:
o INVESTMENT STRATEGY RISK - Marsico Capital uses an investment strategy that
tries to identify equities with growth or income potential. There is a risk
that the value of these investments will not rise as high as Marsico
Capital expects, or will fall.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds,
like the stock market in general, can rise or fall over short as well as
long periods.
o INTEREST RATE RISK - The prices of the Master Portfolio's fixed income
securities will tend to fall when interest rates rise and to rise when
interest rates fall. In general, fixed income securities with longer terms
tend to fall more in value when interest rates rise than fixed income
securities with shorter terms.
o CREDIT RISK - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income securities, but
is generally not a factor for securities that are issued or backed by the
U.S. government. Fixed income securities with the lowest investment grade
rating or that aren't investment grade are more speculative in nature than
securities with higher ratings, and they tend to be more sensitive to
credit risk, particularly during a downturn in the economy.
11
<PAGE>
o FOREIGN INVESTMENT RISK - Although the Master Portfolio may only invest up
to 25% of its assets in foreign securities, it can be affected by the risks
of foreign investing. Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties in
selling securities and lack of financial information. Withholding taxes
also may apply to some foreign investments.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and investors can
buy shares of the Master Portfolio. All investors in the Master Portfolio
invest under the same terms and conditions as the Fund and pay a
proportionate share of the Master Portfolio's expenses. Other investors in
the Master Portfolio will have different shares prices and returns than the
Fund because they all have different sales charges, and ongoing
administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if
the Board of Trustees of Nations Institutional Reserves believes it's in
the best interest of the Fund to do so. It is unlikely that this would
happen, but if it did, the Fund's portfolio could be less diversified and
therefore less liquid. The Fund might also have to pay brokerage, tax or
other charges.
A LOOK AT THE FUND'S PERFORMANCE
LOOKING AT PAST PERFORMANCE CAN GIVE YOU AN IDEA OF A FUND'S VOLATILITY FROM
YEAR TO YEAR AND ITS AVERAGE RETURNS OVER TIME. PERFORMANCE WILL VARY BASED ON
MANY FACTORS, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S
HOLDINGS AND THE FUND'S EXPENSES. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary B Shares. These
returns do not reflect deductions of account fees, if any, and would be lower
if they did.
Year by year total return (%) [bar chart here]
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
BEST: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
For information about the performance of other equity funds managed by Thomas
Marsico, see HOW THE FUNDS ARE MANAGED.
Average annual total return as of December 31, 1998
1 year 5 years 10 years
Primary B Shares 0.00% 0.00% 0.00%
S&P 500 0.00% 0.00% 0.00%
12
<PAGE>
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index
of 500 common stocks chosen by Standard & Poor's on a statistical basis.
There are two kinds of fees -- sales charges you pay directly, and ongoing
fees and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
What it costs to invest in the Fund
Primary B
Shares
Fees you pay directly
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
Ongoing fees and expenses deducted from the Fund's assets
(THE FUND'S OPERATING EXPENSES) 1
Management fees 0.00%
Service fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2)The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000. The
figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
This is an example only. Your actual costs could be higher or lower,
depending on the amount you invest, and on the Fund's actual expenses and
performance.
Example
This example is designed to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary B Shares $000 $000 $000 $000
13
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
ABOUT THE SUB-ADVISER BRANDES INVESTMENT PARTNERS, L.P. (BRANDES) IS THIS
FUND'S SUB-ADVISER. BRANDES' [LARGE CAP INVESTMENT COMMITTEE] MAKES THE
DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
YOU'LL FIND MORE ABOUT BRANDES ON PAGE 00.
WHAT IS THE GRAHAM AND DODD APPROACH TO INVESTING?
Benjamin Graham is widely regarded as the founder of this classic value
approach to investing and a pioneer in modern security analysis. In his 1934
book, SECURITY ANALYSIS, co-written by David Dodd, Graham introduced the
idea that stocks should be chosen by identifying the "true" long-term -- or
intrinsic -- value of a company based on measurable data.
The team follows this approach, looking at each stock as though it's a
business that's for sale. By buying stocks at what it believes are favorable
prices, the Fund looks for the potential for growth over the business cycle.
Limits on investments
To help manage risk, the Fund puts limits on its investments. These limits
apply at the time an investment is made:
NATIONS INTERNATIONAL VALUE FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in equity
securities of foreign issuers, including emerging markets countries.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in foreign companies
anywhere in the world that have a market capitalization of more than $1
billion at the time of investment. The Fund typically invests in at least
three countries other than the United States at any one time.
Securities the Fund invests in are principally COMMON STOCKS, PREFERRED
STOCKS, CONVERTIBLE SECURITIES, shares of closed-end investment companies,
and DEPOSITARY RECEIPTS.
It may also may invest up to 10% of its assets in other kinds of securities,
which are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Fund. The team invests in a company
when its current price appears to be below its true long-term -- or
intrinsic -- value.
The team uses FUNDAMENTAL ANALYSIS to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management
record, as well its industry and its position in the industry. This analysis
includes a review of company reports, filings with the SEC, computer
databases, industry publications, general and business publications, brokerage
firm research reports and other information sources, as well as interviews
with company management.
The Fund may invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in
foreign currency exchange rates.
Risks and other things to consider
Nations International Value Fund has the following general
14
<PAGE>
o The Fund will normally invest no more than 5% of its assets in a single
security.
o It may not invest more than:
o 20% of its assets in a single country or industry, or, if higher,
o 150% of the weighting of a single country or industry in the MSCI EAFE
Index (to a maximum of 25% of its assets in a single industry, other
than U.S. government securities).
o It generally may not invest more than 20% of its assets in emerging markets
or developing countries.
YOU'LL FIND MORE ABOUT OTHER RISKS OF INVESTING IN THIS FUND ON PAGE
00 AND IN THE SAI.
risks:
o INVESTMENT STRATEGY RISK - The management team chooses stocks it believes
are undervalued or out of favor with the expectation that these stocks
will eventually rise in value. There is a risk that the value of these
investments will not rise as high or as quickly as the manager expects, or
will fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties in
selling securities and lack of financial information. Withholding taxes
also may apply to some foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the stock
market in general, can rise or fall over short as well as long periods.
o FUTURES RISK - This Fund may use FUTURES CONTRACTS to convert currencies
and to hedge against changes in foreign currency exchange rates. There is
always a risk that this could result in losses, reduce returns, increase
transaction costs and increase the Fund's volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
International Value Fund of Nations Fund, Inc. voted to vest this authority to
make such investment decision in the sole discretion of the Trustees of Nations
Institutional Reserves, and such investment may be made without further approval
of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A LOOK AT THE FUND'S PERFORMANCE
LOOKING AT PAST PERFORMANCE CAN GIVE YOU AN IDEA OF A FUND'S VOLATILITY FROM
YEAR TO YEAR AND ITS AVERAGE RETURNS OVER TIME. PERFORMANCE WILL VARY BASED ON
MANY FACTORS, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S
HOLDINGS AND THE FUND'S EXPENSES. A FUND'S PAST PERFORMANCE IS NO GUARANTEE OF
HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary B Shares.
These returns do not reflect deductions of account fees, if any, and would
be lower if they did..
Year by year total return (%) [bar chart here]
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
BEST: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
For information about the performance of other international funds managed
by Brandes, see HOW THE FUNDS ARE MANAGED.
Average annual total return as of December 31, 1998
1 year 5 years 10 years
15
<PAGE>
Primary B Shares 0.00% 0.00% 0.00%
MSCI EAFE Index 0.00% 0.00% 0.00%
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative
size of each market.
There are two kinds of fees -- sales charges you pay directly, and ongoing
fees and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
What it costs to invest in the Fund
Primary B
Shares
Fees you pay directly
Maximum sales charge (load)
when you buy your shares none
Maximum deferred sales charge (load)
when you sell your shares none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)
Management fees 0.00%
Service fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(1) 0.00%
(1)The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000. The
figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
Example
This example is designed to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an example only. Your actual costs could be higher or lower,
depending on the amount you invest, and on the Fund's actual expenses and
performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary B Shares $000 $000 $000 $000
16
<PAGE>
ABOUT THE SUB-ADVISER
THE FUND DOES NOT HAVE ITS OWN INVESTMENT ADVISER OR SUB-ADVISER BECAUSE IT'S
A "FEEDER" FUND. FEEDER FUNDS INVEST ALL OF THEIR ASSETS IN ANOTHER FUND,
WHICH IS CALLED A "MASTER FUND" OR "MASTER PORTFOLIO."
BAAI is the Master Portfolio's investment adviser.
The Master Portfolio is a "multiple manager" fund, which means that it's
managed by more than one sub-adviser. Gartmore Global Partners (Gartmore),
INVESCO Global Asset Management (N.A.), Inc. (Invesco) and Putnam Investment
Management Inc. (Putnam) each manage approximately one-third of the assets of
the Portfolio. Five portfolio managers from Gartmore, Invesco's International
Equity Portfolio Management Team and Putnam's Core International Equity Group
make the day-to-day investment decisions for their portion of the Portfolio.
YOU'LL FIND MORE ABOUT GARTMORE, INVESCO AND PUTNAM ON PAGE 00.
Why invest in an international equity fund?
NATIONS INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in EQUITY
SECURITIES of non-United States companies in Europe, Australia, the Far East
and other regions, including developing countries.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations International Equity Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in
established companies located in at least three countries other than the
United States. The portfolio managers select countries, including emerging
market or developing countries, and companies they believe have the
potential for growth.
Securities the Master Portfolio invests in are principally COMMON STOCKS,
but the Master Portfolio may also invest in equity interests in foreign
investment funds or trusts, real estate investment trust securities and
DEPOSITARY RECEIPTS.
The Master Portfolio may invest up to 35% of its assets in CONVERTIBLE
SECURITIES, PREFERRED STOCKS, bonds, notes, and other FIXED INCOME
SECURITIES, including Eurodollar and foreign government securities. It also
may invest up to 10% of its assets in other kinds of securities, which are
described in the SAI.
The Master Portfolio is a "multiple manager" fund. It has three portfolio
managers, and each is responsible for managing approximately one-third of the
Master Portfolio's assets. The managers all have different, but complementary,
investment styles:
o Gartmore combines "top down," regional allocation with a stock selection
process that focuses on investing in securities when growth is likely to be
higher, or sustained longer, than other investors expect
o Invesco uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for long-term growth
o Putnam is a "core manager," focusing on stable, long-term investments,
rather than growth or value stocks. It combines
17
<PAGE>
"bottom up" stock selection with "top down" country allocation
This strategy is based on the belief that having multiple managers may result
in better performance and more stable returns over time.
The Master Portfolio may invest in foreign currency exchange contracts to
convert foreign currencies to and from the U.S. dollar, and to hedge against
changes in foreign currency exchange rates.
International equity funds invest in a diversified portfolio of companies
located in markets throughout the world. These companies can offer investment
opportunities that are not available in the U.S.
Investing internationally can also help reduce the risks associated with a
portfolio of purely domestic investments, because foreign economies can have
different market cycles, and are affected by different factors than the U.S.
economy. However, investing internationally also involves special risks not
associated with investing in the U.S. stock market.
You'll find more about other risks of investing in this Fund on page 00 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations International Equity Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The portfolio managers choose stocks they believe
have the potential for long-term growth. There is a risk that the value of
these investments will not rise as high expected, or will fall. There is
also a risk that the Master Portfolio's multiple manager strategy may not
result in better performance or more stable returns.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties in
selling securities and lack of financial information. Withholding taxes also
may apply to some foreign investments.
o STOCK MARKET RISK - The value of the stocks the Master Portfolio holds, like
the stock market in general, can rise or fall over short as well as long
periods.
o FUTURES RISK - The Master Portfolio may use FUTURES CONTRACTS to convert
currencies and to hedge against changes in foreign currency exchange rates.
There is always a risk that this could result in losses, reduce returns,
increase transaction costs and increase the Master Portfolio's volatility.
o INTEREST RATE RISK - The prices of the Master Portfolio's fixed
18
<PAGE>
income securities will tend to fall when interest rates rise. In general,
fixed income securities with longer terms tend to fall more in value when
interest rates rise than fixed income securities with shorter terms.
o CREDIT RISK - The Master Portfolio could lose money if the issuer of a fixed
income security is unable to pay interest and repay principal when it's due.
Credit risk usually applies to most fixed income securities, but is
generally not a factor for securities that are issued or backed by the U.S.
government. Fixed income securities with the lowest investment grade rating
or that aren't investment grade are more speculative in nature than
securities with higher ratings, and they tend to be more sensitive to credit
risk, particularly during a downturn in the economy.
o INVESTING IN THE MASTER PORTFOLIO - Other mutual funds and investors can buy
shares of the Master Portfolio. All investors in the Master Portfolio invest
under the same terms and conditions as the Fund and pay a proportionate
share of the Master Portfolio's expenses. Other investors in the Master
Portfolio will have different shares prices and returns than the Fund
because they all have different sales charges, and ongoing administrative
and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio if the
Board of Trustees of Nations Institutional Reserves believes it's in the
best interest of the Fund to do so. It is unlikely that this would happen,
but if it did, the Fund's portfolio could be less diversified and therefore
less liquid. The Fund might also have to pay brokerage, tax or other
charges.
The bar chart shows you the performance of the Fund's Primary B Shares.
These returns do not reflect deductions of account fees, if any, and would
be lower if they did.
A LOOK AT THE FUND'S PERFORMANCE
LOOKING AT PAST PERFORMANCE CAN GIVE YOU AN IDEA OF A FUND'S VOLATILITY FROM
YEAR TO YEAR AND ITS AVERAGE RETURNS OVER TIME. PERFORMANCE WILL VARY BASED
ON MANY FACTORS, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE FUND'S
HOLDINGS AND THE FUND'S EXPENSES. A FUND'S PAST PERFORMANCE IS NO GUARANTEE
OF HOW IT WILL PERFORM IN THE FUTURE.
Year by year total return (%)
[bar chart here]
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
BEST: 0 quarter 1900: 0%
Worst: 0 quarter 1900: 0%
19
<PAGE>
Average annual total return as of December 31, 1998
1 year 5 years 10 years
Primary B Shares 0.00% 0.00% 0.00%
MSCI EAFE Index 0.00% 0.00% 0.00%
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative
size of each market.
There are two kinds of fees -- sales charges you pay directly, and ongoing
fees and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
What it costs to invest in the Fund
Primary B
Shares
Fees you pay directly
Maximum sales charge (load) when you buy your shares none
Maximum deferred sales charge (load) when you sell your shares none
Ongoing fees and expenses deducted from the Fund's assets
(THE FUND'S OPERATING EXPENSES)(1)
Management fees 0.00%
Service fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(2) 0.00%
(1)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(2)The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000. The
figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date.
This is an example only. Your actual costs could be higher or lower,
depending on the amount you invest, and on the Fund's actual expenses
and performance.
EXAMPLE
This example is designed to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary B Shares $000 $000 $000 $000
20
<PAGE>
ABOUT THE SUB-ADVISER
GARTMORE IS THIS FUND'S SUB-ADVISER. PHILIP EHRMANN, THE HEAD OF THE GARTMORE
EMERGING MARKETS TEAM, MAKES THE DAY-TO-DAY INVESTMENT DECISIONS FOR THE FUND.
YOU'LL FIND MORE ABOUT GARTMORE ON PAGE 00.
What's an emerging market?
This Fund considers a country to be an emerging market if:
o the International Finance Corporation has defined it as an emerging market
o it has a low-to-middle income economy according to the World Bank, or
o it's listed as developing in World Bank publications.
There are over 25 countries that currently meet these criteria, including
Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador,
Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines,
Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan
and Turkey.
NATIONS EMERGING MARKETS FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East and India.
NATIONS EMERGING MARKETS FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East and India.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its assets in companies in emerging
markets or developing countries. The Fund intends to invest in securities of
companies in at least three of these countries at any one time.
The Fund normally invests in COMMON STOCKS, PREFERRED STOCKS, CONVERTIBLE
SECURITIES, equity interests in foreign investment funds or trusts, and
DEPOSITARY RECEIPTS. The Fund may invest up to 10% of its assets in other
kinds of securities, which are described in the SAI.
The portfolio manager looks for emerging markets that have the potential for
strong economic growth, and tries to avoid emerging markets that might be
politically or economically risky.
The manager starts with approximately 800 companies in the most promising
markets, and
o uses fundamental research to select 80 to 100 stocks in 15 or more
countries, looking at earnings growth, financial resources, marketability,
and other factors
o may visit companies to confirm the corporate and industry factors that led
to a stock's selection as a potential investment
o regularly reviews the Fund's investments to determine whether companies are
meeting expected return targets and whether their fundamental financial
health has changed.
The Fund may invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in
foreign currency exchange rates.
22
<PAGE>
You'll find more about other risks of investing in this Fund on page 00 and in
the SAI.
RISKS AND OTHER THINGS TO CONSIDER
Nations Emerging Markets Fund has the following general risks:
o INVESTMENT STRATEGY RISK - The manager invests in securities of companies in
emerging markets, which have high growth potential, but can be more volatile
than securities in more developed markets. There is a risk that the value of
these investments will not rise as high as the manager expects, or will
fall.
o FOREIGN INVESTMENT RISK - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties in
selling securities and lack of financial information. Withholding taxes also
may apply to some foreign investments.
o STOCK MARKET RISK - The value of the stocks the Fund holds, like the stock
market in general, can rise or fall over short as well as long periods.
o FUTURES RISK - This Fund may use FUTURES CONTRACTS to convert currencies and
to hedge against changes in foreign currency exchange rates. There is always
a risk that this could result in losses, reduce returns, increase
transaction costs and increase the Fund's volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
Emerging Markets Fund of Nations Fund Portfolios, Inc. voted to vest this
authority to make such investment decision in the sole discretion of the
Trustees of Nations Institutional Reserves, and such investment may be made
without further approval of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arrangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A LOOK AT THE FUND'S PERFORMANCE
LOOKING AT PAST PERFORMANCE CAN GIVE YOU AN IDEA OF A FUND'S VOLATILITY
FROM YEAR TO YEAR AND ITS AVERAGE RETURNS OVER TIME. PERFORMANCE WILL VARY
BASED ON MANY FACTORS, INCLUDING MARKET CONDITIONS, THE COMPOSITION OF THE
FUND'S HOLDINGS AND THE FUND'S EXPENSES. A FUND'S PAST PERFORMANCE IS NO
GUARANTEE OF HOW IT WILL PERFORM IN THE FUTURE.
The bar chart shows you the performance of the Fund's Primary B Shares. These
returns do not reflect deductions of account fees, if any, and would be lower
if they did.
Year by year total return (%) [bar chart here]
BEST AND WORST QUARTERLY RETURNS DURING THIS PERIOD:
BEST: 0 quarter 1900: 0.00%
Worst: 0 quarter 1900: 0.00%
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998
1 year 5 years 10 years
Primary B Shares 0.00% 0.00% 0.00%
MSCI EAFE Index 0.00% 0.00% 0.00%
The MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia
and Far East Index) is an index of over 1,100 stocks from 21 developed markets
in Europe, Australia, New Zealand and Asia. The index reflects the relative
size of each market.
23
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There are two kinds of fees -- sales charges you pay directly, and ongoing
fees and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting
waivers and/or reimbursements.
WHAT IT COSTS TO INVEST IN THE FUND
Primary B
Shares
Fees you pay directly
Maximum sales charge (load)
when you buy your shares none
Maximum deferred sales charge (load)
when you sell your shares none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)
Management fees 0.00%
Service fees 0.00%
Other expenses 0.00%
Total annual fund operating expenses 0.00%
Fee waivers and/or reimbursements 0.00%
Total net expenses(1) 0.00%
(1)The Fund's investment adviser and/or some of its other service providers
have agreed to waive fees and/or reimburse expenses until July 31, 2000. The
figures shown here are after waivers and/or reimbursements. There is no
guarantee that these waivers and/or reimbursements will continue after this
date. This is an example only. Your actual costs could be higher or lower,
depending on the amount you invest, and on the Fund's actual expenses and
performance.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
Example
This example is designed to help you compare the cost of investing in this
Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Primary B Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
If you sold all of your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Primary B Shares $000 $000 $000 $000
24
<PAGE>
OTHER IMPORTANT INFORMATION
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page 00. The following
are some other risks and information you should consider before you invest:
o Your investment in these Funds is not a bank deposit and is not insured or
guaranteed by Bank of America National Trust and Savings Association (Bank
of America), the Federal Deposit Insurance Corporation or any other
government agency. Your investment may lose money.
o Affiliates of Bank of America are paid for the services they provide to the
Funds.
o CHANGING INVESTMENT OBJECTIVES AND POLICIES - The investment objective and
certain investment policies of any Fund can be changed without shareholder
approval. Other investment policies may be changed only with shareholder
approval.
o HOLDING OTHER KINDS OF INVESTMENTS - The Funds may hold investments that
aren't part of their principal investment strategies. Please refer to the
SAI for more information.
o FOREIGN INVESTMENT RISK - Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund can invest up to 25% of their assets in foreign
securities. The international funds can invest all of their assets in
foreign securities. Funds that invest in foreign securities may be affected
by changes in currency exchange rates and the costs of converting
currencies; foreign government controls on foreign investment, repatriation
of capital, and currency and exchange; foreign taxes; inadequate supervision
and regulation of some foreign markets; volatility from a lack of LIQUIDITY;
different settlement practices or delayed settlements in some markets;
difficulty getting complete or accurate information about foreign companies;
less strict accounting, auditing and financial reporting standards than
those in the U.S.; political, economic or social instability; and difficulty
enforcing legal rights outside the U.S.
Securities issued by companies in developing or emerging market countries,
like those in Eastern Europe, the Pacific
25
<PAGE>
Basin and the Far East, may bemore sensitive to the risks of foreign
investing. In particular, these countries may experience instability
resulting from rapid social, political and economic development. Many of
these countries are dependent on international trade, which makes them
sensitive to world commodity prices and economic downturns in other
countries. Some emerging countries have a higher risk of currency
devaluation, and some countries may experience long periods of high
inflation or rapid changes in inflation rates.
o INVESTING DEFENSIVELY - A Fund may temporarily hold investments that are not
part of its investment objective or its principal investment strategies to
try to protect it during a market or economic downturn or because of
political or other conditions. A Fund may not achieve its investment
objective while it is investing defensively.
o PORTFOLIO TURNOVER - A Fund that replaces -- or turns over -- more than 100%
of its securities in a year may have higher brokerage costs than a Fund that
is trading less frequently. This may also result in larger distributions of
CAPITAL GAINS to shareholders. All of the Funds generally buy securities for
capital appreciation, investment income, or both, and do not engage in
short-term trading. You'll find the portfolio turnover rate for each Fund in
the FINANCIAL HIGHLIGHTS.
o PREPARING FOR THE YEAR 2000 - The year 2000 is an issue for organizations,
companies and entities around the world that rely on computer systems to
process date-related information. Computer systems that cannot read a four-
digit year may not be able to calculate and process information on or after
January 1, 2000.
All of the Funds' primary service providers have confirmed that they have
been working to make the necessary changes to their systems, and that they
expect them to be adapted in time. There is no guarantee, however, that
their computer systems will ready by the year 2000. If their computer
systems are not ready in time, there could be a negative effect on Fund
operations.
A Fund's performance could also be affected if securities it holds decrease
in value because of year 2000 issues. Funds that invest in foreign
securities may be at greater risk because the computer systems of many
foreign issuers, governments or other entities may not be ready for the year
2000.
26
<PAGE>
27
<PAGE>
HOW THE FUNDS ARE MANAGED
BANC OF AMERICA ADVISORS, INC.
One Bank of America Plaza
Charlotte, North Carolina 28255
INVESTMENT ADVISER
BAAI is the investment adviser to the equity and international funds, as
well as to over 60 other mutual fund portfolios in the Nations Funds Family.
BAAI is a registered investment adviser. It's a wholly owned subsidiary of
Bank of America, which is owned by Bank of America Corporation. Nations
Funds pays BAAI an annual fee for its investment advisory services. The fee
is calculated daily based on the average net assets of each Fund and is paid
monthly. BAAI uses part of this money to pay investment sub-advisers for the
services they provide to Nations Funds.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds
until July 31, 2000. You'll find a discussion of any waiver and/or
reimbursement in the Fund descriptions. There is no assurance that BAAI will
continue to waive and/or reimburse any fees and/or expenses after this date.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Funds' last fiscal
period (April 1, 1998 to March 31, 1999), after waivers and reimbursements:
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum Actual fee paid
advisory fee last fiscal year
<S> <C> <C>
Nations Marsico Focused Equities Fund 0.00 0.00
Nations Marsico Growth & Income Fund 0.00 0.00
Nations Strategic Equity Fund 0.00 0.00
Nations International Value Fund 0.00 0.00
Nations International Equity Fund 0.00 0.00
Nations Emerging Markets Fund 0.00 0.00
</TABLE>
28
<PAGE>
INVESTMENT SUB-ADVISERS
Nations Funds and BAAI have engaged investment sub-advisers to provide day-
to-day portfolio management for the Funds. These sub-advisers function under
the supervision of the Boards of Directors/Trustees of Nations Funds and
BAAI.
Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado
80202
MARSICO CAPITAL MANAGEMENT, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas
F. Marsico in September 1997. It is a registered investment adviser,
specializing in large capitalization stocks, and currently has [$65] billion
in assets under management.
Marsico Management Holdings, LLC, a wholly owned subsidiary of Bank of
America, owns 50% of the equity of Marsico Capital.
Marsico Capital is the investment sub-adviser to:
o Nations Marsico Focused Equities Master Portfolio
o Nations Marsico Growth & Income Master Portfolio
THOMAS F. MARSICO, Chairman and Chief Executive Officer of Marsico Capital,
is the portfolio manager responsible for making the day-to-day investment
decisions for these Portfolios. Before forming the company, Mr. Marsico was
an executive vice president and portfolio manager at Janus Capital
Corporation. He has more than 20 years of experience as a securities analyst
and portfolio manager.
PERFORMANCE OF OTHER EQUITY FUNDS MANAGED BY THOMAS MARSICO
Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income
Fund have been in operation since December 31, 1997, so they have a short
performance history. The tables below are designed to show you how similar
equity funds managed by Thomas Marsico performed in the past.
The Janus Twenty Fund has an investment objective, policies and strategies
that are very similar to Nations Marsico Focused Equities Fund. Mr. Marsico
managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997.
He had full discretionary authority for selecting investments for that fund,
which had approximately $6 billion in net assets on August 11, 1997.
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<PAGE>
The table below shows the returns for the Janus Twenty Fund compared with
the S&P 500 for the periods ending August 7, 1997. The returns reflect
deductions of fees and expenses, except for any account level charges, and
assume all dividends and distributions have been reinvested.
Average annual total returns as of August 7, 1997
Janus Twenty Fund S&P 500
(%) (%)
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of
Mr. Marsico's management
(January 31, 1988 to
August 7, 1997) 23.38 18.20
This information is designed to demonstrate the historical track record of
Mr. Marsico. It does not indicate how the Fund has performed or will perform
in the future.
Performance will vary based on many factors, including market conditions,
the composition of the Fund's holdings and the Fund's expenses.
The Janus Growth and Income Fund has an investment objective, policies and
strategies that are very similar to Nations Marsico Growth & Income Fund.
Mr. Marsico managed the Janus Growth and Income Fund from is inception on
May 31, 1991 through August 11, 1997. He had full discretionary authority
for selecting investments for that fund, which had approximately $1.7
billion in net assets on August 11, 1997.
The table below shows the returns for the Janus Growth and Income Fund
compared with the S&P 500 for the period ending August 7, 1997. The S&P 500
is a broadly based index of 500 large U.S. companies. The returns reflect
deductions of fees and expenses, except for any account level charges, and
assume all dividends and distributions have been reinvested.
Average annual total returns as of August 7, 1997
Janus Growth
and Income
Fund S&P 500
(%) (%)
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of
Mr. Marsico's management
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<PAGE>
(May 31, 1991 to
August 7, 1997) 21.19 18.59
This information is designed to demonstrate the historical track record of
Mr. Marsico. It does not indicate how the Fund has performed or will perform
in the future.
Performance will vary based on many factors, including market conditions,
the composition of the Fund's holdings and the Fund's expenses.
Brandes Investment Partners, L.P. 12750 High Bluff Drive San Diego,
California 92130
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 37 investment
professionals who manage more than $20 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to
build wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' [Large Cap Investment Committee] is responsible for
making the day-to-day investment decisions for the Portfolio.
Performance of other international equity funds and accounts managed by
Brandes
Nations International Value Fund has been in operation since [0], so it has
a short performance history. The table below is designed to show you how a
similar composite of international equity accounts managed by Brandes
performed over a longer period in the past.
The Brandes composite has an investment objective, policies and strategies
that are similar to Nations International Value Fund.
The table below shows the returns for the Brandes composite compared with
the MSCI EAFE INDEX for the periods ending December 31, 1998. The MSCI EAFE
Index is an index of over 1,100 stocks from 21 developed markets in Europe,
Australia, New Zealand and Asia. The index reflects the relative size of
each market. The returns reflect deductions of fees and expenses, except for
any account level charges, and assume all dividends and distributions have
been reinvested.
Average annual total returns as of December 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
one year 0.00 0.00
31
<PAGE>
three years 0.00 0.00
five years 0.00 0.00
since inception 0.00 0.00
(0, 0 , 0)
Average annual total returns as of December 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
1998 0.00 0.00
1997 20.00 1.78
1996 16.34 6.05
1995 13.75 11.21
1994 (2.98) 7.78
1993 40.86 32.56
1992 6.28 (12.17)
1991 40.17 12.13
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Fund has performed or will perform in
the future.
Performance will vary based on many factors, including market conditions,
the composition of the Fund's holdings and the Fund's expenses.
The Brandes composite includes Brandes International Equity Fund and
international equity accounts managed by Brandes. The accounts don't pay the
same expenses that mutual funds pay and aren't subject to the
diversification rules, tax restrictions and investment limits under the 1940
Act or Subchapter M of the Internal Revenue Code. Returns could have been
lower if the composite had been subject to these expenses and regulations.
The aggregate returns of the accounts in the composite don't reflect the
returns of any particular account of Brandes.
Gartmore Global Partners One Bank of America Plaza Charlotte, North Carolina
28255
GARTMORE GLOBAL PARTNERS
Gartmore is a global asset manager dedicated to serving the needs of U.S.
based investors. Gartmore was formed in 1995 as a registered investment
adviser and manages more than $0 billion in assets.
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of Bank of America, and Gartmore
U.S. Limited, an indirect, wholly owned subsidiary of Gartmore Investment
Management plc, a UK holding company for a leading UK-based international
fund management group of companies.
Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International
Equity Master Portfolio and is the investment sub-
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<PAGE>
adviser to Nations Emerging Markets Fund.
Nations International Equity Master Portfolio is co-managed by five
portfolio managers:
PHILIP EHRMANN has been responsible since June 1998 for the Master
Portfolio's investments in developing countries. He has also been the
principal portfolio manager for Nations Emerging Markets Fund since he
joined Gartmore in 1995, and is head of the Gartmore Emerging Markets Team.
Before he joined Gartmore, Mr. Ehrmann was the director of emerging markets
for Invesco in London. He began his career in 1981 as an institutional stock
broker with Rowe & Pitman Inc. and also spent a brief period with Prudential
Bache Securities as an institutional salesman before joining Invesco in
1984. Mr. Ehrmann graduated from the London School of Economics with a
degree in Economics, Industry and Trade.
SEOK TEOH has been responsible since June 1998 for the Master Portfolio's
investments in Asia. She has also been principal portfolio manager of
Nations Pacific Growth Fund since it was formed in June 1995. Ms. Teoh has
been with Gartmore since 1990 as the London based manager of its Far East
Team. Previously, she managed four equity funds for Rothschild Asset
Management in Tokyo and Singapore, and was also responsible for Singaporean
and Malaysian equity sales at Overseas Union Bank Securities in Singapore.
Ms. Teoh is native to Singapore and is fluent in Mandarin and Cantonese. She
received an Economics degree from the University of Durham.
MARK FAWCETT has been responsible since June 1998 for the Master Portfolio's
investments in Japan. He is also senior investment manager for the Gartmore
Japanese Equities Team and has specific responsibility for large stock
research. Before joining Gartmore in 1991, he worked on the Far East desk of
Provident Mutual managing funds invested in Japan. He graduated from Oxford
University in 1986 with an honors degree in Mathematics and Philosophy.
STEPHEN JONES has been responsible for the Master Portfolio's investments in
Europe since 1998. He is also head of Gartmore European Equities. Mr. Jones
joined Gartmore in 1994 and was appointed head of the European equity team
in 1995. He began his career at The Prudential in 1984, and became a
European equities investment manager in 1987, focusing on France,
33
<PAGE>
Belgium and Switzerland. He graduated from Manchester University in 1984
with an honors degree in Economics.
STEPHEN WATSON has been responsible since June 1998 for allocating the
Master Portfolio's assets among the various regions in which it invests, and
for determining the Master Portfolio's investments in regions not covered by
the other portfolio managers. He was the Master Portfolio's sole portfolio
manager from February 1995 to June 1998. Mr. Watson joined Gartmore in 1993
as a global fund manager, and is the chief investment officer of Gartmore
Global Partners and a member of Gartmore's global policy group. Before
joining Gartmore, he was a director and global fund manager with James Capel
Fund Managers, London, as well as client service manager for international
clients. He was in Capel-Cure Myers' portfolio management division from 1980
to 1987, and began his career in 1976 with Samuel Motagu. He is a member of
the Securities Institute.
Nations Emerging Markets Fund is managed by PHILIP EHRMANN, the head of
Gartmore Emerging Markets Team. He has managed the Fund since 1995. He also
co-manages Nations International Equity Master Portfolio.
INVESCO Global Asset Management (N.A), Inc. 1315 Peachtree Street, N.E.
Atlanta, Georgia 30309
INVESCO Global Asset Management (N.A), Inc.
Invesco is a division of INVESCO Global, a publicly traded investment
management firm located in London, England, and a wholly owned subsidiary of
AMVESCAP PLC, a publicly traded UK financial holding company, which is also
located in London.
Invesco is one of three investment sub-advisers to Nations International
Equity Master Portfolio. Invesco's International Equity Portfolio Management
Team is responsible for making the day-to-day investment decisions for its
portion of the Master Portfolio.
PUTNAM INVESTMENT MANAGEMENT, INC. One Post Office Square Boston,
Massachusetts 02109
PUTNAM INVESTMENT MANAGEMENT, INC.
Putnam is a wholly owned subsidiary of Putnam Investments, Inc., which,
except for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International
Equity Master Portfolio. Putnam's Core International Equity Group is
responsible for making the day-to-day investment decisions for its portion
of the Master Portfolio.
34
<PAGE>
STEPHENS INC. 111 Center Street Little Rock, Arkansas 72201
FIRST DATA INVESTOR SERVICES GROUP, INC. One Exchange Place Boston,
Massachusetts 02109
OTHER SERVICE PROVIDERS
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer. Stephens may pay service fees or commissions to companies
that assist investors in buying shares of the Funds.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee for their services, plus certain out of pocket expenses. The
fee is paid monthly, and is calculated as an annual percentage of the
average daily net assets of the Funds, as follows:
Domestic equity funds 0.23%
International funds 0.22%
First Data Investor Services Group, Inc. (First Data) is the transfer agent
for the Funds' shares. Its responsibilities include processing purchases,
sales and exchanges, calculating and paying distributions, keeping
shareholder records, preparing account statements and providing customer
service.
35
<PAGE>
ABOUT YOUR INVESTMENT
Financial institutions and intermediaries may have different limits, charge
other fees, or have different policies for buying, selling and exchanging
shares than those described in this prospectus.
A business day is any day that the New York Stock Exchange (NYSE) is open. A
business day ends at the close of regular trading on the New York Stock
Exchange (NYSE), usually at 4:00 p.m. Eastern time. If the NYSE closes
early, the business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
BUYING, SELLING AND EXCHANGING SHARES
In general, only financial institutions and intermediaries that have signed an
agreement with us or Stephens can buy Primary B shares for their own accounts
or [fiduciary] client accounts. These include the following categories of
investors:
o Bank of America and its affiliates
o banks
o brokerage firms
o mutual fund dealers
o other financial institutions
The minimum initial investment for each investor of record is $1,000. There is
no minimum for additional investments.
Investors don't pay any sales charges when they buy, sell or exchange Primary
B Shares.
Please contact your financial adviser, or call us at 1-800-621-2192 if you
have any questions about how to place an order.
HOW SHARES ARE PRICED
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the net asset value
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class. International
markets may be open on days when U.S. markets are closed. The value of foreign
securities owned by a Fund could change on days when Fund shares may not be
bought or sold.
Valuing securities in a Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily
36
<PAGE>
available, we'll base the price of a security on its fair market value. We use
the amortized cost method, which approximates market value, to value
short-term investments maturing in 60 days or less.
HOW ORDERS ARE PROCESSED
Orders to buy, sell or exchange shares are processed on business days.
Orders received by Stephens, First Data or their agents before the end of a
business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early)
will receive that day's net asset value per share. Orders received after the
end of a business day will receive the next business day's net asset value
per share. The business day that applies to your order is also called the
TRADE DATE. We may refuse any order. If this happens, we'll return any money
we've received to the investor.
37
<PAGE>
BUYING SHARES
Here are some general rules for buying shares:
o Investors buy Primary B Shares at net asset value per share.
o If we don't receive payment within three business days of receiving an
order, we'll refuse the order and notify the investor. We'll return any
payment for orders that we refuse or do not receive to the investor.
o Investors are responsible for sending us orders for their clients and for
ensuring that we receive payment on time. Telephone orders may be difficult
to complete during periods of significant economic or market change.
o Shares purchased are recorded on the books of the Fund. We don't issue
certificates.
o Investors are responsible for recording the beneficial ownership of the
shares of their clients, and for reporting this ownership on account
statements they send to their clients.
Selling shares
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire to investors within
three business days after Stephens, First Data or their agents receive the
order.
o Investors are responsible for sending us orders for their clients and for
depositing the sale proceeds to their accounts on time.
o Under certain circumstances allowed under the 1940 Act, we can pay investors
in securities or other property when they sell shares, or delay payment of
the sale proceeds for up to seven days.
We may sell shares:
o if the value of an investor's account after the shares are sold falls below
$500. We'll provide 60 days notice in writing if we're going to do this
o if an investor tells us to sell the shares for a client under arrangements
it has made with its clients under certain other circumstances allowed under
the 1940 Act. You should make sure you understand the investment objectives
and policies of the Fund you're exchanging into. Please read its prospectus
carefully.
Exchanging shares
Investors can sell shares of a Fund to buy shares of another
38
<PAGE>
Nations Fund. This is called an exchange, and may be appropriate if investment
goals or tolerance for risk change.
You should make sure you understand the investment objectives and policies of
the Fund you're exchanging into. Please read its prospectus carefully
Here's how exchanges work:
o Investors can exchange Primary B Shares of a Fund for Primary B Shares of
all other Nations Funds.
o The rules for buying a Fund, including any minimum investment requirements,
apply to exchanges into that Fund.
o Exchanges can only be made into a Fund that is legally sold in the
investor's state of residence.
o Exchanges can generally only be made into a Fund that is accepting
investments.
o We may limit the number of exchanges that can be made within a specified
period of time.
o We may change or cancel the right to make an exchange by giving the amount
of notice required by regulatory authorities (currently 60 days for a
material change or cancellation), unless we are required to do so because of
unusual circumstances.
o Shares that are held in certificate form cannot be exchanged until First
Data has received the certificate and deposited the shares to the investor's
account.
o Telephone orders may be difficult to complete during periods of significant
economic or market change.
39
<PAGE>
Financial institutions and intermediaries are also referred to as selling
agents.
Conflict of interest restrictions may apply to financial institutions that
receive compensation from us on fiduciary assets invested in Primary B
Shares. Financial institutions should consult their legal advisers before
investing in Primary B Shares.
The selling agent may charge other fees related to services provided to your
account.
HOW SELLING AGENTS ARE PAID
The selling agent usually receives compensation when you invest in the
Funds. The kind and amount of the compensation depends on the share class
you invest in.
Selling agents typically pay a portion of the compensation they receive to
their investment professionals.
OSHAREHOLDER ADMINISTRATION FEES
Selling agents are compensated for providing administration and other
services to investors.
Selling agents may receive an annual shareholder administration fee of up to
0.60% of the average daily net assets of Primary B Shares of the Funds. Part
of this fee -- but no more than 0.25% of the average daily net assets of
Primary B Shares of the Funds -- can be applied to servicing fees.
Fees are calculated daily and deducted monthly. Over time, these fees will
increase the cost of your investment.
We pay these fees according to our agreements with selling agents for as long
as the plan continues, while they are eligible to receive the fees. We may
reduce or discontinue payments at any time.
OTHER COMPENSATION
Selling agents may also receive non-cash compensation like 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.
Stephens or BAAI may make this compensation available only to selected selling
agents. For example, Stephens sometimes
40
<PAGE>
sponsors promotions involving Banc of America Investments, Inc., an affiliate
of BAAI, and certain other selling agents. Selected selling agents may also
receive compensation for opening a minimum number of accounts.
Stephens is responsible for paying the costs of this compensation, and may be
reimbursed for them under the administration plan. Stephens may cancel any
compensation program at any time.
BAAI may pay amounts from its own assets to Stephens or other financial
institutions for administrative or distribution related services they provide
to shareholders.
41
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The power of compounding
You can choose to reinvest your distributions in additional shares of the
same Fund and class.
Reinvesting your distributions buys you more shares of a Fund -- which lets
you take advantage of the potential for compound growth.
Putting the money you earn back into your investment means it, in turn, may
earn even more money. Over time, the power of compounding has the potential to
significantly increase the value of your investment.
Distributions and taxes
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on COMMON STOCKS.
o A fund can also have CAPITAL GAINS if the value of its investments
increases. If a fund sells an investment at a gain, the gain is realized. If
a fund continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gains to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gains to
their shareholders so the Funds won't have to pay any income tax. When a
Fund makes this kind of a payment, it's split equally among all shares, and
is called a distribution.
All of the Funds distribute any net realized capital gains, including net
short-term capital gains, at least once a year.
The frequency of distributions of net investment income vary by Fund:
FREQUENCY OF INCOME
FUND DISTRIBUTIONS
Nations Marsico Focuses Equities Fund quarterly
Nations Marsico Growth & Income Fund quarterly
Nations International Value Fund annually
Nations International Equity Fund quarterly
Nations Emerging Markets Fund quarterly
A distribution is paid based on the number of shares you hold on the day
before the distribution is declared. Shares of the Funds are eligible to
receive distributions from the TRADE DATE of the purchase, as long as it's at
least one day before a distribution is declared, up to the day before the
shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made,
the net asset value per share of the share class is reduced by the amount of
the distribution.
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We'll automatically reinvest distributions in additional shares of the same
Fund unless you tell us you want to receive your distributions in cash.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you want to
receive your distributions you sell all of your shares, we'll pay any
distribution that applies to those shares in cash within five business days
after the sale was made.
If you buy shares of a Fund shortly before it makes a distribution, you will,
in effect, receive part of your purchase back in the distribution, which is
subject to tax. Similarly, if you buy shares of a Fund that holds securities
with unrealized capital gains, you will, in effect, receive part of your
purchase back if and when the Fund sells those securities, and realizes and
distributes the gain. This distribution is also subject to tax. Some Funds
have built up, or have the potential to build up, high levels of unrealized
capital gains.
This information is a summary of how federal income taxes may affect your
investment in the Funds. It is not intended as a substitute for careful tax
planning. You should consult with your own tax advisor about your situation,
including any foreign, state and local taxes that may apply.
For more information about taxes, please see the SAI.
HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, including net foreign currency gains
and any excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income. Corporate shareholders may be
able to exclude a portion of these distributions from their taxable income.
Distributions of net capital gain (generally the excess of net long-term
capital gain over net short-term capital loss), generally are taxable to you
as net capital gains. Individual, trust and estate shareholders may be taxed
on these distributions at preferential rates.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
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o Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
sale proceeds paid to you (including amounts deemed to be paid for "in kind"
redemptions and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding.
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You
may receive a refund from the IRS if the withholding tax results in an
overpayment of taxes.
We're also required by federal law to withhold tax on distributions paid to
some foreign shareholders.
o Foreign taxes
Mutual funds that maintain most of their portfolio in foreign securities --
like the international funds -- have special tax considerations. You'll
generally be required to:
o include in your gross income your proportional amount of foreign taxes paid
by the fund
o treat this amount as foreign taxes you paid directly
o either deduct this amount when calculating your income, or subject to certain
conditions and limitations, claim this amount as a foreign tax credit against
your federal income tax liability
In general, you can claim up to $300 ($600 if you're filing jointly) as a
foreign tax credit.
o Taxation of redemptions and exchanges
Your redemptions (including redemptions "in kind") and exchanges of Fund
shares will usually result in a taxable capital gain or loss to you,
depending on the amount you receive for your shares (or are deemed to
receive in the case of exchanges)
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and the amount you paid (or are deemed to have paid) for them.
45
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Financial highlights
The financial highlights table is designed to help you understand how the
Funds have performed for the past five years. Certain information reflects
financial results for a single Fund share. The total investment return line
indicates how much an investment in the Fund would have earned, assuming all
dividends and distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. You'll find
the auditor's report and Nations Funds financial statements in the SAI. Please
see the back cover to find out how you can get a copy.
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGH EACH PERIOD
<TABLE>
<CAPTION>
Year ended Period ended
PRIMARY B SHARES 03/31/98# 03/31/97*#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.11 $ 13.65
Net investment income/(loss) 0.04 0.01
Net realized and unrealized gain/(loss) on
investments 1.91 (0.09)(a)
Net increase/(decrease) in net asset value from
operations 1.95 (0.08)
DISTRIBUTIONS:
Dividends from net investment income (0.08) (0.01)
Distributions in excess of net investment income (0.02) (0.00)**
Distributions from net realized capital gains (0.16) (0.42)
Distributions in excess of net realized capital gains -- (0.03)
Total dividends and distributions (0.26) (0.46)
Net asset value, end of period $ 14.80 $ 13.11
TOTAL RETURN++ 15.09% (0.66)%
======================================================= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 25 $5,526
Ratio of operating expenses to average net assets 1.64% 1.66%+
Ratio of net investment income/(loss) to average
net assets 0.26% 0.12%+
Portfolio turnover rate 64% 36%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.64% 1.66%+
</TABLE>
* Nations International Equity Fund Primary B Shares
commenced operations on June 28, 1996.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) The amount shown at the caption for each share
outstanding throughout the period may not accord
with the net realized and unrealized gain/(loss) for
the period because of the timing of purchase and
withdrawals of shares in relation to the fluctuating
market value of the portfolio.
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGH EACH PERIOD
<TABLE>
<CAPTION>
Year ended Period ended
PRIMARY B SHARES 03/31/98# 03/31/97*
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.40 $ 10.71
Net investment income/(loss) (0.02) (0.04)
Net realized and unrealized gain/(loss) on
investments (0.75) 0.82
Net increase/(decrease) in net asset value from
operations (0.77) 0.78
DISTRIBUTIONS:
Dividends from net investment income (0.06) (0.01)
Distributions in excess of net investment income -- (0.02)
Distributions from net realized capital gains -- (0.06)
Total dividends and distributions (0.06) (0.09)
Net asset value, end of period $ 10.57 $ 11.40
TOTAL RETURN++ (6.80)% 7.34%
================================================== ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 37 $ 301
Ratio of operating expenses to average net
assets 2.07% 2.24%+
Ratio of net investment income/(loss) to average
net assets (0.14)% (0.37)%+
Portfolio turnover rate 63% 31%
</TABLE>
* Nations Emerging Markets Fund Primary B Shares
commenced operations on June 28, 1996.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
46
<PAGE>
Terms used in this prospectus
ASSET-BACKED SECURITY - a debt security that gives you a share in a pool of
assets that is backed by loan paper, accounts receivable or other assets,
including mortgages, generally issued by banks, credit card companies or other
lenders. Some securities may be issued or guaranteed by the U.S. government or
by any of its agencies, authorities or instrumentalities. Asset-backed
securities make periodic payments, which may be interest or a combination of
interest and a portion of the principal of the underlying assets.
BARRA INDEX (1) - an index of approximately 340 common stocks from the S&P 500
that have low price-to-book ratios. These stocks generally tend to have higher
yields and less volatility than other stocks included in the S&P 500.
BARRA SMALLCAP INDEX (1) - an index of approximately 375 common stocks from the
S&P 600 that have low price-to-book ratios. These stocks generally tend to
have higher yields and less volatility than other stocks included in the S&P
600.
CAPITAL GAIN (CAPITAL LOSS) - the difference between the purchase price of a
security and its selling price. You REALIZE a capital gain (or loss) when you
sell a security for more (or less) than you paid for it.
COMMON STOCK - an equity security that represents part ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
CONVERTIBLE DEBT -- a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
CONVERTIBLE SECURITY -- a security that can be exchanged for common stock (or
another type of security) at a specified rate and date. Convertible securities
include convertible debt, rights and warrants.
DEBT SECURITY - when you invest in a debt security, you are lending your money
to a governmental body or company (the issuer) to help fund their operations or
major projects. The issuer
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<PAGE>
pays interest at a specified rate on a specified date or dates, and repays the
principal when the security matures. Short-term debt securities include money
market instruments such as treasury bills. Long-term debt securities include
fixed income securities such as government and corporate bonds, and
mortgage-backed and asset-backed securities.
DEPOSITARY RECEIPTS - securities representing securities of companies based in
countries other than the U.S. Examples include ADRs, ADSs, GDRs and EDRs.
DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
EQUITY SECURITY - an investment that gives you part ownership in a company.
Equity securities (or "equities") include common and preferred stock, rights
and warrants.
FIXED INCOME SECURITY - an intermediate to long-term debt security that
matures in more than one year.
FOREIGN SECURITY - a debt or equity security issued by a foreign government or
corporation.
FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
FUTURES CONTRACT - a contract to buy or sell an asset or an index of
securities at a specified price on a specified date. The price is set through
a futures exchange.
INVESTMENT GRADE - a debt security that has been given a medium to high credit
rating (BBB or higher) by a nationally recognized statistical rating
organization (NRSRO), based on the issuer's ability to pay interest and repay
principal on time. A debt security that has not been rated, but is believed to
be of comparable quality, may also be considered investment grade. Please see
the SAI for more information about credit ratings.
LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
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<PAGE>
MONEY MARKET INSTRUMENT - a short-term debt security that matures in one year
or less. Money market instruments include U.S. Treasury obligations, U.S.
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements and municipal securities.
MORTGAGE-BACKED SECURITY - a debt security that gives you a share in (or is
backed by) a pool of residential mortgages issued by the U.S. government or by
financial institutions. The underlying mortgages may be guaranteed by the U.S.
government or one of its agencies, authorities or instrumentalities. Mortgage-
backed securities make monthly payments, which are a combination of interest
and a portion of the principal of the underlying mortgages.
MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size
of each market.
MUNICIPAL DEBT SECURITY - a debt security issued by state or local governments
or governmental authorities to pay for public projects and services. "General
obligations" are backed by the issuer's full taxing and revenue-raising powers.
"Revenue securities" depend on the income earned by a specific project or
authority, like road or bridge tolls, user fees for water or revenues from a
utility. Interest income is exempt from federal income taxes and is generally
exempt from state taxes if you live in the state that issued the security. If
you live in the municipality that issued the security, interest income may also
be exempt from local taxes.
NON-DIVERSIFIED - a fund that holds fewer securities than other kinds of funds.
This increases the risk that its value could go down significantly if one or
more of its investments performs poorly. Non-diversified funds tend to have
greater price swings than more diversified funds.
OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
PREFERRED STOCK - an equity security that gives you an ownership
49
<PAGE>
right in a company, on a different basis than common stock. Preferred stock
generally pays a fixed annual dividend. If the company goes bankrupt, preferred
shareholders generally receive their share of the company's remaining assets
before common shareholders and after bondholders and other creditors.
PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of the
value of a company.
QUANTITATIVE ANALYSIS - an analysis of financial information about a company or
security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
REAL ESTATE INVESTMENT TRUST (REIT) - a managed portfolio of real estate
investments which may include office buildings, apartment complexes, hotels and
shopping malls, and real-estate-related loans or interests.
RIGHT - a temporary privilege allowing investors who already own a common stock
to buy additional shares directly from the company at a specified price or
formula.
S&P 500 (1) - Standard & Poor's 500 Composite Stock Price Index, an index of
500 common stocks chosen by S&P on a statistical basis.
S&P 600 (1) - Standard & Poor's SmallCap 600 Index, is designed to be a
benchmark of the performance of small capitalization stocks. It includes 600
U.S. stocks chosen by S&P based on market size, liquidity and industry group.
SENIOR SECURITY - a debt security that allows holders to receive their share
of a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
TRADE DATE - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. GOVERNMENT OBLIGATION - a debt security issued or guaranteed by the U.S.
government or any of its agencies, authorities or instrumentalities. Direct
obligations are issued by the U.S.
50
<PAGE>
Treasury.
WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1)S&P and BARRA have not reviewed any stock included in the S&P 500, S&P 600,
BARRA Index or BARRA SmallCap Index for its investment merit. S&P and BARRA
determine and calculate their indexes independently of the Funds and are not a
sponsor or affiliate of the Funds. S&P and BARRA give no information and make
no statements about the suitability of investing in the Funds or the ability of
their indexes to track stock market performance. S&P and BARRA make no
guarantees about the indexes, any data included in them and the suitability of
the indexes or their data for any purpose. "Standard and Poor's," "S&P 500"and
"S&P 600"are trademarks of the McGraw-Hill Companies, Inc.
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<PAGE>
Where to find more information
You'll find more information about the Equity Funds and International Funds in
the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports contain information about Fund investments
and performance, the financial statements and the auditor's reports. The annual
report also includes a discussion about the market conditions and investment
strategies that had a significant effect on each Fund's performance during the
period covered.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional information about the Funds and their policies. The
SAI is legally part of this prospectus (it's incorporated by reference). A copy
has been filed with the SEC.
You can obtain a free copy of these documents by contacting Nations Funds:
By telephone: 1-800-621-2192
By mail:
Nations Funds c/o Stephens Inc.
One Bank of America Plaza 33rd Floor
Charlotte, NC 28255
On the Internet: www.nationsbank.com/ nationsfund
If you prefer, you can write or call the SEC's Public Reference Room and ask
them to mail you copies of these documents. They'll charge you a fee for this
service. You can also download them from the SEC's website or visit the Public
Reference Section and copy the documents while you're there.
Public Reference Section of the SEC
52
<PAGE>
Washington, DC 20549-6009
1-800-SEC-0330
http://www.sec.gov
SEC file numbers:
[Nations Fund Trust, 811-04305]
53
<PAGE>
(logo)
Prospectus
August 1, 1999
EQUITY FUNDS
Nations Marsico Focused Equities Fund
Nations Marsico Growth & Income Fund
INTERNATIONAL FUNDS
Nations International Value Fund
Nations International Equity Fund
Nations Emerging Markets Fund
o Investor A Shares
o Investor B Shares
o Investor C Shares
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
[box:]
NOT FDIC-INSURED May lose value No bank guarantee
NF-00000-8/99
1
<PAGE>
TERMS USED IN THIS PROSPECTUS
In this prospectus, we, us and our refer to the Nations Funds Family (Nations
Funds). Some other important terms we've used may be new to you. These are
printed in italics where they first appear in a section and are described in
Terms used in this prospectus.
You'll find Terms used in this prospectus on page o
FOR MORE INFORMATION
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes detailed information about each Fund's
investments, policies, performance and management, among other things. The SAI
is legally considered to be part of this prospectus because it's incorporated by
reference. Turn to the back cover to find out how you can get a copy of the SAI.
ABOUT THIS PROSPECTUS
This booklet, which is called a prospectus, tells you about some of Nations
Funds equity and international funds. Please read it carefully, because it
contains information that's designed to help you make informed investment
decisions.
Each fund group has different objectives and strategies:
o equity funds invest primarily in equities securities of U.S. companies
o international funds invest primarily in equity securities of companies
in countries around the world
Equity securities have the potential to provide you with higher returns than
many other kinds of investments, but they also tend to have the highest risk.
Foreign securities also involve special risks not associated with investing in
the U.S. stock market, which you need to be aware of before you invest.
In every case, there's a risk that you'll lose money or you may not earn as much
as you expect.
CHOOSING THE RIGHT FUNDS FOR YOU
The equity and international funds all focus on long-term growth. They may be
suitable for you if:
o you're investing for longer-term investment goals
o they form part of a balanced portfolio.
o you want to try to protect your portfolio against a loss of buying
power that inflation can cause over time.
They may not be suitable for you if:
o you are not prepared or are unable to bear the risks associated with
equity securities, including foreign securities
o you have short-term investment goals
o you are looking for a regular stream of income
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page o.
2
<PAGE>
If you have any questions about the Funds, please call us at 1-800-321-7854 or
contact your financial adviser.
3
<PAGE>
ABOUT THE FUNDS
Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI) is the investment adviser to each of the
Funds. BAAI is responsible for the overall management and supervision of the
investment management of each Fund. BAAI and Nations Funds have engaged
sub-advisers, which are responsible for the day-to-day investment decisions for
each of the Funds.
You'll find more about BAAI and the sub-advisers starting on page o.
The equity funds focus on long-term growth by investing primarily in equity
securities.
The international funds focus on long-term growth by investing primarily in
equity securities of companies in countries around the world.
ABOUT YOUR INVESTMENT
WHAT'S INSIDE
EQUITY FUNDS
Nations Marsico Focused Equities Fund.........................................00
Sub-adviser: Marsico Capital Management, LLC
Nations Marsico Growth & Income Fund..........................................00
Sub-adviser: Marsico Capital Management, LLC
INTERNATIONAL FUNDS
Nations International Value Fund..............................................00
Sub-adviser: Brandes Investment Partners, L.P.
Nations International Equity Fund.............................................00
Sub-advisers: Gartmore Global Partners, INVESCO Global Asset
Management (N.A.), Inc., Putnam Investment Management, Inc.
Nations Emerging Markets Fund ................................................00
Sub-adviser: Gartmore Global Partners
OTHER IMPORTANT INFORMATION...................................................00
HOW THE FUNDS ARE MANAGED.....................................................00
INFORMATION FOR INVESTORS.....................................................00
Buying, selling and exchanging shares....................................00
How selling agents are paid..............................................00
Distributions and taxes .................................................00
FINANCIAL HIGHLIGHTS..........................................................00
TERMS USED IN THIS PROSPECTUS ................................................00
4
<PAGE>
WHERE TO FIND MORE INFORMATION ...................................... back cover
5
<PAGE>
ABOUT THE EQUITY FUNDS
ABOUT THE SUB-ADVISER
The Fund does not have its own investment adviser or sub-adviser because it's a
"feeder" fund. Feeder funds invest all of their assets in another fund, which is
called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is the
portfolio manager and makes the day-to-day investment decisions for the Master
Portfolio.
You'll find more about Marsico Capital and Mr. Marsico on page o.
WHAT IS A FOCUSED FUND?
A focused fund concentrates its investments in a small number of companies with
earnings that are believed to have the potential to grow significantly. This
Fund focuses on large, established and well-known U.S. companies.
Because a focused fund holds fewer investments than other kinds of funds, this
Fund can have greater price swings than more diversified funds. It may earn
relatively higher returns when one of its investments performs well, or
relatively lower returns when an investment performs poorly.
NATIONS MARSICO FOCUSED EQUITIES FUND
INVESTMENT OBJECTIVE
This Fund seeks long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests all of its assets in Nations Marsico Focused Equities Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in common
stocks of large companies. The Master Portfolio, which is non-diversified,
generally holds a core position of 20 to 30 of common stocks.
The Master Portfolio may invest up to 25% of its assets in foreign securities.
It may also up to 10% of its assets in other kinds of securities, which are
described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may not
be recognized by other investors, focusing on companies that have some of the
following characteristics:
o Products, markets or technologies in flux that can result in
extraordinary growth
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Master Portfolio reduce
risk.
o They are moving with, not against, the major social, economic and
cultural shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a disciplined
analytical process to assess its potential as an investment. This process
includes a "top-down" analysis that takes into account economic factors like
interest rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis that considers
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<PAGE>
may earn relatively higher returns when one of its investments performs well, or
relatively lower returns when an investment performs poorly.
You'll find more about other risks of investing in this Fund on page o and in
the SAI.
individual company characteristics like commitment to research, market franchise
and quality of management.
RISKS AND OTHER THINGS TO CONSIDER
Nations Marsico Focused Equities Fund has the following general risks:
o investment strategy risk - This Master Portfolio is considered to be
"non-diversified" because it may hold fewer securities than other kinds
of equity funds. This increases the risk that its value could go down
significantly if one or more of its investments performs poorly. The
value of this Portfolio will tend to have greater price swings than the
value of more diversified equity funds. There also is a risk that the
value of the Master Portfolio's investments will not rise as high as
Marsico Capital expects, or will fall. The Master Portfolio may become
a diversified fund by limiting the investments in which more than 5% of
its total assets are invested.
o stock market risk - The value of the stocks the Master Portfolio holds,
like the stock market in general, can rise or fall over short as well
as long periods.
o foreign investment risk - Although the Master Portfolio may only invest
up to 25% of its assets in foreign securities, it can be affected by
the risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties in selling securities and lack of financial information.
Withholding taxes also may apply to some foreign investments.
o investing in the Master Portfolio - Other mutual funds and investors
can buy shares of the Master Portfolio. All investors in the Master
Portfolio invest under the same terms and conditions as the Fund and
pay a proportionate share of the Master Portfolio's expenses. Other
investors in the Master Portfolio will have different shares prices and
returns than the Fund because they all have different sales charges,
and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if the Board of Trustees of Nations Institutional Reserves believes
it's in the best interest of the Fund to do so. It is unlikely that
this would happen, but if it did, the
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The bar chart shows you the performance of the Fund's Investor A Shares. These
returns do not reflect deductions of sales charges or account fees, and would be
lower if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
For information about the performance of other equity funds managed by Thomas
Marsico, see How the Funds are managed.
There are two kinds of fees-sales charges you pay directly, and ongoing fees and
deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
Fund's portfolio could be less diversified and therefore less liquid.
The Fund might also have to pay brokerage, tax or other charges.
A LOOK AT THE FUND'S performance
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A Fund's past performance is no guarantee of
how it will perform in the future.
Year by year total return (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: o quarter 19oo: o%
Worst: o quarter 19oo: o%
Average annual total return as of December 31, 1998
1 year 5 years 10 years
Investor A Shares o.oo% o.oo% o.oo%
Investor B Shares o.oo% o.oo% o.oo%
Investor C Shares o.oo% o.oo% o.oo%
S&P 500 o.oo% o.oo% o.oo%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
WHAT IT COSTS TO INVEST IN THE FUND
Investor A Investor B Investor C
Shares Shares Shares
FEES YOU PAY DIRECTLY
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge (load)
when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
ONGOING FEES AND EXPENSES DEDUCTED FROM THE FUND'S ASSETS
(THE FUND'S OPERATING EXPENSES)(5)
Management fees o% o% o%
Distribution (12b-1) and service fees o% o% o%
Other expenses o% o% o%
Total annual fund operating expenses o% o% o%
8
<PAGE>
Fee waivers and/or reimbursements o% o% o%
Total net expenses(6) o% o% o%
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
Please see page o for details.
(2)This charge decreases over time. Please see page o for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after July
31, 1997. Please see page o for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page o for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
(5)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(6)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
EXAMPLE
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
If you bought Investor B Shares and didn't sell them, your costs would be:
1 year 3 years 5 years 10 years
Investor B Shares $ooo $ooo $ooo $ooo
9
<PAGE>
ABOUT THE SUB-ADVISER
The Fund does not have its own investment adviser or sub-adviser because it's a
"feeder" fund. Feeder funds invest all of their assets in another fund, which is
called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser, and Marsico Capital
Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is the
portfolio manager and makes the day-to-day investment decisions for the Master
Portfolio.
You'll find more about Marsico Capital and Mr. Marsico on page o.
Why invest in a growth and income fund? Growth and income funds can invest in a
mix of equity and fixed income securities. This can help reduce volatility and
provides the fund with the flexibility to shift among securities that offer the
potential for higher returns.
While this Fund invests in a wide range of companies and industries, it holds
fewer securities than other kinds of funds. This means it can have greater price
swings than more diversified funds. It may earn relatively higher returns when
one of its investments performs well, or relatively lower returns when an
investment performs poorly.
Nations Marsico Growth & Income Fund
Investment objective
This Fund seeks long-term growth of capital with a limited emphasis on income.
Principal investment strategies
The Fund invests all of its assets in Nations Marsico Growth & Income Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests up to 75% of its assets in equity
securities that are believed to have significant growth potential and at least
25% of its assets in equity and fixed income securities that are believed to
have income potential. The Master Portfolio generally holds 35 to 50 securities
and emphasizes large-capitalization common stocks.
Marsico Capital may shift assets between growth and income securities based on
its analysis of market, financial and economic conditions. It will emphasize
growth securities if it believes they will provide better returns than the
yields available or expected on income-producing securities. If Marsico Capital
believes it appropriate to do so, it may also reduce investments in growth
securities to 25% of the Master Portfolio's assets.
Since income is a part of the Master Portfolio's investment objective, Marsico
Capital may consider a company's anticipated dividends when selecting equity
securities. The Master Portfolio is not, however, designed to produce a
consistent level of income. It may also find opportunities for capital growth
from fixed income securities because of expected changes in interest rates,
credit rating, currency exchange rates or other factors.
The Master Portfolio may hold up to 25% of its assets in foreign securities. It
may also invest up to 10% of its assets in other kinds of securities, which are
described in the SAI.
Marsico Capital looks for companies with earnings growth potential that may not
be recognized by other investors, focusing on companies that have some of the
following characteristics:
o Products, markets or technologies in flux that can result in
extraordinary growth
10
<PAGE>
You'll find more about other risks of investing in this Fund on page o and in
the SAI.
o Strong brand franchises that can take advantage of a changing global
environment
o Global reach that can allow the Master Portfolio to take advantage of a
broader range of investment opportunities. Not limiting itself to the
markets of a single country can also help the Master Portfolio reduce
risk.
o They are moving with, not against, the major social, economic and
cultural shifts taking place in the world
Once an investment opportunity is identified, Marsico Capital uses a disciplined
analytical process to assess its potential as an investment. This process
includes a "top-down" analysis that takes into account economic factors like
interest rates, inflation, the regulatory environment, the industry and global
competition. The process also includes a "bottom-up" analysis that considers
individual company characteristics like commitment to research, market franchise
and quality of management.
Risks and other things to consider
Nations Marsico Growth & Income Fund has the following general risks:
o investment strategy risk - Marsico Capital uses an investment strategy
that tries to identify equities with growth or income potential. There
is a risk that the value of these investments will not rise as high as
Marsico Capital expects, or will fall.
o stock market risk - The value of the stocks the Master Portfolio holds,
like the stock market in general, can rise or fall over short as well
as long periods.
o interest rate risk - The prices of the Master Portfolio's fixed income
securities will tend to fall when interest rates rise and to rise when
interest rates fall. In general, fixed income securities with longer
terms tend to fall more in value when interest rates rise than fixed
income securities with shorter terms.
o credit risk - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest or repay principal when
it's due. Credit risk usually applies to most fixed income securities,
but is generally not a factor for securities that are issued or backed
by the U.S. government. Fixed income securities with the lowest
investment grade rating or that aren't investment grade are more
speculative in nature than securities with higher ratings, and they
tend to be more sensitive to credit risk, particularly during a
downturn in the economy.
11
<PAGE>
The bar chart shows you the performance of the Fund's Investor A Shares. These
returns do not reflect deductions of sales charges or account fees, and would be
lower if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
o foreign investment risk - Although the Master Portfolio may only invest
up to 25% of its assets in foreign securities, it can be affected by
the risks of foreign investing. Foreign investments may be riskier than
U.S. investments because of political and economic conditions, changes
in currency exchange rates, foreign controls on investment,
difficulties in selling securities and lack of financial information.
Withholding taxes also may apply to some foreign investments.
o investing in the Master Portfolio - Other mutual funds and investors
can buy shares of the Master Portfolio. All investors in the Master
Portfolio invest under the same terms and conditions as the Fund and
pay a proportionate share of the Master Portfolio's expenses. Other
investors in the Master Portfolio will have different shares prices and
returns than the Fund because they all have different sales charges,
and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if the Board of Trustees of Nations Institutional Reserves believes
it's in the best interest of the Fund to do so. It is unlikely that
this would happen, but if it did, the Fund's portfolio could be less
diversified and therefore less liquid. The Fund might also have to pay
brokerage, tax or other charges.
A look at the Fund's performance
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A Fund's past performance is no guarantee of
how it will perform in the future.
Year by year total return (%)
[bar chart here]
Best and worst quarterly
returns during this period:
Best: o quarter 19oo: o%
Worst: o quarter 19oo: o%
Average annual total return
as of December 31, 1998
1 year 5 years 10 years
Investor A Shares o.oo% o.oo% o.oo%
Investor B Shares o.oo% o.oo% o.oo%
12
<PAGE>
Investor C Shares o.oo% o.oo% o.oo%
S&P 500 o.oo% o.oo% o.oo%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
What it costs to invest in the Fund
Investor A Investor B Investor C
Shares Shares Shares
Fees you pay directly
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge (load)
when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees o% o% o%
Distribution (12b-1) and service fees o% o% o%
Other expenses o% o% o%
Total annual fund operating expenses o% o% o%
Fee waivers and/or reimbursements o% o% o%
Total net expenses(6) o% o% o%
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
Please see page o for details.
(2)This charge decreases over time. Please see page o for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after July
31, 1997. Please see page o for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page o for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
(5)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(6)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
Example
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C
13
<PAGE>
Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
If you bought Investor B Shares and didn't sell them, your costs would be:
1 year 3 years 5 years 10 years
Investor B Shares $ooo $ooo $ooo $ooo
14
<PAGE>
ABOUT THE INTERNATIONAL FUNDS
About the sub-adviser
Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes'
[Large Cap Investment Committee] makes the day-to-day investment decisions for
the Fund.
You'll find more about Brandes on page o.
What is the Graham and Dodd approach to investing?
Benjamin Graham is widely regarded as the founder of this classic value approach
to investing and a pioneer in modern security analysis. In his 1934 book,
Security Analysis, co-written by David Dodd, Graham introduced the idea that
stocks should be chosen by identifying the "true" long-term -- or intrinsic --
value of a company based on measurable data.
The team follows this approach, looking at each stock as though it's a business
that's for sale. By buying stocks at what it believes are favorable prices, the
Fund looks for the potential for growth over the business cycle.
NATIONS INTERNATIONAL VALUE FUND
Investment objective
This Fund seeks long-term capital growth by investing primarily in equity
securities of foreign issuers, including emerging markets countries.
Principal investment strategies
The Fund normally invests at least 65% of its assets in foreign companies
anywhere in the world that have a market capitalization of more than $1 billion
at the time of investment. The Fund typically invests in at least three
countries other than the United States at any one time.
Securities the Fund invests in are principally common stocks, preferred stocks,
convertible securities, shares of closed-end investment companies, and
depositary receipts.
It may also may invest up to 10% of its assets in other kinds of securities,
which are described in the SAI.
The portfolio management team uses the "Graham and Dodd" value approach to
selecting securities and managing the Fund. The team invests in a company when
its current price appears to be below its true long-term -- or intrinsic --
value.
The team uses fundamental analysis to determine intrinsic value, and will look
at a company's book value, cash flow, capital structure, and management record,
as well its industry and its position in the industry. This analysis includes a
review of company reports, filings with the SEC, computer databases, industry
publications, general and business publications, brokerage firm research reports
and other information sources, as well as interviews with company management.
The Fund may invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in foreign
currency exchange rates.
15
<PAGE>
Limits on investments To help manage risk, the Fund puts limits on its
investments. These limits apply at the time an investment is made:
o The Fund will normally invest no more than 5% of its assets in a single
security.
o It may not invest more than:
o 20% of its assets in a single country or industry, or, if higher,
o 150% of the weighting of a single country or industry in the MSCI EAFE
Index (to a maximum of 25% of its assets in a single industry, other
than U.S. government securities).
o It generally may not invest more than 20% of its assets in emerging
markets or developing countries.
You'll find more about other risks of investing in this Fund on page o and in
the SAI.
The bar chart shows you the performance of the Fund's Investor A Shares. These
returns do not reflect deductions of sales charges or account fees, and would be
lower if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
Risks and other things to consider Nations International Value Fund has the
following general risks:
o investment strategy risk - The management team chooses stocks it
believes are undervalued or out of favor with the expectation that
these stocks will eventually rise in value. There is a risk that the
value of these investments will not rise as high or as quickly as the
manager expects, or will fall.
o foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties
in selling securities and lack of financial information. Withholding
taxes also may apply to some foreign investments.
o stock market risk The value of the stocks the Fund holds, like the
stock market in general, can rise or fall over short as well as long
periods.
o futures risk - This Fund may use futures contracts to convert
currencies and to hedge against changes in foreign currency exchange
rates. There is always a risk that this could result in losses, reduce
returns, increase transaction costs and increase the Fund's volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
International Value Fund of Nations Fund, Inc. voted to vest this authority to
make such investment decision in the sole discretion of the Trustees of Nations
Institutional Reserves, and such investment may be made without further approval
of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arrangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A look at the Fund's performance
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A Fund's past performance is no guarantee of
how it will perform in the future.
Year by year total return (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: o quarter 19oo: o%
Worst: o quarter 19oo: o%
Average annual total return as of December 31, 1998
16
<PAGE>
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
The S&P 500 $ooo $ooo $ooo $ooo
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
What it costs to invest in the Fund
Investor A Investor B Investor C
Shares Shares Shares
Fees you pay directly
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge (load)
when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)
Management fees o% o% o%
Distribution (12b-1) and service fees o% o% o%
Other expenses o% o% o%
Total annual fund operating expenses o% o% o%
Fee waivers and/or reimbursements o% o% o%
Total net expenses(5) o% o% o%
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
Please see page o for details.
(2)This charge decreases over time. Please see page o for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after July
31, 1997. Please see page o for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page o for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
(5)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
Example
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C
17
<PAGE>
Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
If you bought Investor B Shares and didn't sell them, your costs would be:
1 year 3 years 5 years 10 years
Investor B Shares $ooo $ooo $ooo $ooo
18
<PAGE>
About the sub-adviser
The Fund does not have its own investment adviser or sub-adviser because it's a
"feeder" fund. Feeder funds invest all of their assets in another fund, which is
called a "master fund" or "master portfolio."
BAAI is the Master Portfolio's investment adviser.
The Master Portfolio is a "multiple manager" fund, which means that it's managed
by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO
Global Asset Management (N.A.), Inc. (Invesco) and Putnam Investment Management
Inc. (Putnam) each manage approximately one-third of the assets of the
Portfolio. Five portfolio managers from Gartmore, Invesco's International Equity
Portfolio Management Team and Putnam's Core International Equity Group make the
day-to-day investment decisions for their portion of the Portfolio.
You'll find more about Gartmore, Invesco and Putnam on page o.
Why invest in an international equity fund?
Nations International Equity Fund
Investment objective
This Fund seeks long-term capital growth by investing primarily in equity
securities of non-United States companies in Europe, Australia, the Far East and
other regions, including developing countries.
Principal investment strategies
The Fund invests all of its assets in Nations International Equity Master
Portfolio (the Master Portfolio). The Master Portfolio has the same investment
objective as the Fund.
The Master Portfolio normally invests at least 65% of its assets in established
companies located in at least three countries other than the United States. The
portfolio managers select countries, including emerging market or developing
countries, and companies they believe have the potential for growth.
Securities the Master Portfolio invests in are principally common stocks, but
the Master Portfolio may also invest in equity interests in foreign investment
funds or trusts, real estate investment trust securities and depositary
receipts.
The Master Portfolio may invest up to 35% of its assets in convertible
securities, preferred stocks, bonds, notes, and other fixed income securities,
including Eurodollar and foreign government securities. It also may invest up to
10% of its assets in other kinds of securities, which are described in the SAI.
The Master Portfolio is a "multiple manager" fund. It has three portfolio
managers, and each is responsible for managing approximately one-third of the
Master Portfolio's assets. The managers all have different, but complementary,
investment styles:
o Gartmore combines "top down," regional allocation with a stock
selection process that focuses on investing in securities when growth
is likely to be higher, or sustained longer, than other investors
expect
o Invesco uses a "bottom up" approach, focusing exclusively on stock
selection, and looking for long-term growth
o Putnam is a "core manager," focusing on stable, long-term investments,
rather than growth or value stocks. It combines
19
<PAGE>
International equity funds invest in a diversified portfolio of companies
located in markets throughout the world. These companies can offer investment
opportunities that are not available in the U.S.
Investing internationally can also help reduce the risks associated with a
portfolio of purely domestic investments, because foreign economies can have
different market cycles, and are affected by different factors than the U.S.
economy. However, investing internationally also involves special risks not
associated with investing in the U.S. stock market.
You'll find more about other risks of investing in this Fund on page o and in
the SAI.
"bottom up" stock selection with "top down" country allocation
This strategy is based on the belief that having multiple managers may result in
better performance and more stable returns over time.
The Master Portfolio may invest in foreign currency exchange contracts to
convert foreign currencies to and from the U.S. dollar, and to hedge against
changes in foreign currency exchange rates.
Risks and other things to consider Nations International Equity Fund has the
following general risks:
o investment strategy risk - The portfolio managers choose stocks they
believe have the potential for long-term growth. There is a risk that
the value of these investments will not rise as high expected, or will
fall. There is also a risk that the Master Portfolio's multiple manager
strategy may not result in better performance or more stable returns.
o foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in
currency exchange rates, foreign controls on investment, difficulties
in selling securities and lack of financial information. Withholding
taxes also may apply to some foreign investments. o stock market risk
The value of the stocks the Master Portfolio holds, like the stock
market in general, can rise or fall over short as well as long periods.
o futures risk - The Master Portfolio may use futures contracts to
convert currencies and to hedge against changes in foreign currency
exchange rates. There is always a risk that this could result in
losses, reduce returns, increase transaction costs and increase the
Master Portfolio's volatility.
o interest rate risk - The prices of the Master Portfolio's fixed
20
<PAGE>
The bar chart shows you the performance of the Fund's Investor A Shares. These
returns do not reflect deductions of sales charges or account fees, and would be
lower if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
income securities will tend to fall when interest rates rise. In
general, fixed income securities with longer terms tend to fall more in
value when interest rates rise than fixed income securities with
shorter terms.
o credit risk - The Master Portfolio could lose money if the issuer of a
fixed income security is unable to pay interest and repay principal
when it's due. Credit risk usually applies to most fixed income
securities, but is generally not a factor for securities that are
issued or backed by the U.S. government. Fixed income securities with
the lowest investment grade rating or that aren't investment grade are
more speculative in nature than securities with higher ratings, and
they tend to be more sensitive to credit risk, particularly during a
downturn in the economy.
o investing in the Master Portfolio - Other mutual funds and investors
can buy shares of the Master Portfolio. All investors in the Master
Portfolio invest under the same terms and conditions as the Fund and
pay a proportionate share of the Master Portfolio's expenses. Other
investors in the Master Portfolio will have different shares prices and
returns than the Fund because they all have different sales charges,
and ongoing administrative and other expenses.
The Fund can withdraw its entire investment from the Master Portfolio
if the Board of Trustees of Nations Institutional Reserves believes
it's in the best interest of the Fund to do so. It is unlikely that
this would happen, but if it did, the Fund's portfolio could be less
diversified and therefore less liquid. The Fund might also have to pay
brokerage, tax or other charges.
A look at the Fund's performance
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A Fund's past performance is no guarantee of
how it will perform in the future.
Year by year total return (%)
[bar chart here]
Best and worst quarterly
returns during this period:
Best: o quarter 19oo: o%
Worst: o quarter 19oo: o%
21
<PAGE>
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
Average annual total return as of December 31, 1998
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
The S&P 500 $ooo $ooo $ooo $ooo
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
What it costs to invest in the Fund
Investor A Investor B Investor C
Shares Shares Shares
Fees you pay directly
Maximum sales charge (load)
when you buy your shares 5.75% none none
Maximum deferred sales charge (load)
when you sell your shares none(1) 5.00%(2) 1.00%(3)
Redemption fee, as a percentage
of the amount sold none(4) none none
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)(5)
Management fees o% o% o%
Distribution (12b-1) and service fees o% o% o%
Other expenses o% o% o%
Total annual fund operating expenses o% o% o%
Fee waivers and/or reimbursements o% o% o%
Total net expenses(6) o% o% o%
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
(2)This charge decreases over time. Please see page o for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after July
31, 1997. Please see page o for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page o for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
(5)These fees and expenses include the Fund's portion of the fees and expenses
deducted from the assets of the Master Portfolio.
(6)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
Example
This example is designed to help you compare the cost of
22
<PAGE>
investing in this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an example only. Your actual costs could be higher or lower, depending
on the amount you invest, and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
If you bought Investor B Shares and didn't sell them, your costs would be:
1 year 3 years 5 years 10 years
Investor B Shares $ooo $ooo $ooo $ooo
23
<PAGE>
About the sub-adviser
Gartmore is this Fund's sub-adviser. Philip Ehrmann, the head of the Gartmore
Emerging Markets team, makes the day-to-day investment decisions for the Fund.
You'll find more about Gartmore on page o.
What's an emerging market?
This Fund considers a country to be an emerging market if:
o the International Finance Corporation has defined it as an emerging market
o it has a low-to-middle income economy according to the World Bank, or
o it's listed as developing in World Bank publications.
There are over 25 countries that currently meet these criteria, including
Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador, Greece,
Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland,
Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey.
Nations Emerging Markets Fund
Investment objective
This Fund seeks long-term capital growth by investing primarily in equity
securities of companies in emerging market countries, such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East and India.
Principal investment strategies
The Fund normally invests at least 65% of its assets in companies in emerging
markets or developing countries. The Fund intends to invest in securities of
companies in at least three of these countries at any one time.
The Fund normally invests in common stocks, preferred stocks, convertible
securities, equity interests in foreign investment funds or trusts, and
depositary receipts. The Fund may invest up to 10% of its assets in other kinds
of securities, which are described in the SAI.
The portfolio manager looks for emerging markets that have the potential for
strong economic growth, and tries to avoid emerging markets that might be
politically or economically risky.
The manager starts with approximately 800 companies in the most promising
markets, and
o uses fundamental research to select 80 to 100 stocks in 15 or more countries,
looking at earnings growth, financial resources, marketability, and other
factors
o may visit companies to confirm the corporate and industry factors that led to
a stock's selection as a potential investment
o regularly reviews the Fund's investments to determine whether companies are
meeting expected return targets and whether their fundamental financial health
has changed.
The Fund may invest in foreign currency exchange contracts to convert foreign
currencies to and from the U.S. dollar, and to hedge against changes in foreign
currency exchange rates.
Risks and other things to consider
24
<PAGE>
You'll find more about other risks of investing in this Fund on page o and in
the SAI.
The bar chart shows you the performance of the Fund's Investor A Shares. These
returns do not reflect deductions of sales charges or account fees, and would be
lower if they did. Returns for Investor B and Investor C Shares are different
because they have their own expenses, pricing and sales charges.
Nations Emerging Markets Fund has the following general risks:
o investment strategy risk - The manager invests in securities of companies in
emerging markets, which have high growth potential, but can be more volatile
than securities in more developed markets. There is a risk that the value of
these investments will not rise as high as the manager expects, or will fall.
o foreign investment risk - Foreign investments may be riskier than U.S.
investments because of political and economic conditions, changes in currency
exchange rates, foreign controls on investment, difficulties in selling
securities and lack of financial information. Withholding taxes also may apply
to some foreign investments.
o stock market risk The value of the stocks the Fund holds, like the stock
market in general, can rise or fall over short as well as long periods.
o futures risk - This Fund may use futures contracts to convert currencies and
to hedge against changes in foreign currency exchange rates. There is always a
risk that this could result in losses, reduce returns, increase transaction
costs and increase the Fund's volatility.
MASTER/FEEDER OPTION: The Trustees of Nations Institutional Reserves may, in the
future, seek to achieve the Fund's investment objective by investing all of the
Fund's assets in another investment company having the same investment objective
and substantially the same investment policies and restrictions as those
applicable to the Fund. This master-feeder option is similar to that structure
described for the Nations International Equity Fund, the Marsico Funds, and
their respective Master Portfolios. See "Investing in the Master Portfolio" in
the disclosure for those Funds.
In August 1999, the shareholders of the predecessor portfolio of Nations
Emerging Markets Fund of Nations Fund Portfolios, Inc. voted to vest this
authority to make such investment decision in the sole discretion of the
Trustees of Nations Institutional Reserves, and such investment may be made
without further approval of the shareholders of the Fund.
Shareholders of the Fund will be given at least 30 days' prior notice of any
such investment. This investment would be made only if the Trustees determine it
to be in the best interest of the Fund and its shareholders. In making that
determination, the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Fund believes that the Trustees of Nations
Institutional Reserves would not approve an arrangement that is likely to result
in higher costs, no assurance is given that costs will be materially reduced if
this option is implemented.
A look at the Fund's performance
Looking at past performance can give you an idea of a Fund's volatility from
year to year and its average returns over time. Performance will vary based on
many factors, including market conditions, the composition of the Fund's
holdings and the Fund's expenses. A Fund's past performance is no guarantee of
how it will perform in the future.
Year by year total return (%)
[bar chart here]
Best and worst quarterly returns during this period:
Best: o quarter 19oo: o%
Worst: o quarter 19oo: o%
Average annual total return as of December 31, 1998
1 year 5 years 10 years
Investor A Shares o.oo% o.oo% o.oo%
Investor B Shares o.oo% o.oo% o.oo%
Investor C Shares o.oo% o.oo% o.oo%
S&P 500 o.oo% o.oo% o.oo%
The S&P 500 (Standard & Poor's 500 Composite Stock Price Index) is an index of
500 common stocks chosen by Standard & Poor's on a statistical basis.
25
<PAGE>
There are two kinds of fees -- sales charges you pay directly, and ongoing fees
and expenses that are deducted from the Fund's assets.
Total net expenses are actual expenses paid by the Fund after deducting waivers
and/or reimbursements.
basis.
What it costs to invest in the Fund
Investor A Investor B Investor C
Shares Shares Shares
Fees you pay directly
Maximum sales charge (load) 5.75% none none
when you buy your shares none(1) 5.00%(2) 1.00%(3)
Maximum deferred sales charge (load) none(4) none none
when you sell your shares
Redemption fee, as a percentage
of the amount sold
Ongoing fees and expenses deducted from the Fund's assets
(the Fund's operating expenses)
Management fees o% o% o%
Distribution (12b-1) and service fees o% o% o%
Other expenses o% o% o%
Total annual fund operating expenses o% o% o%
Fee waivers and/or reimbursements o% o% o%
Total net expenses(5) o% o% o%
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
Please see page o for details.
(2)This charge decreases over time. Please see page o for details. Different
charges apply to Investor B Shares bought before January 1, 1996 and after July
31, 1997. Please see page o for details.
(3)This charge applies to investors who buy Investor C Shares and sell them
within one year of buying them. Please see page o for details.
(4)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
(5)The Fund's investment adviser and/or some of its other service providers have
agreed to waive fees and/or reimburse expenses until July 31, 2000. The figures
shown here are after waivers and/or reimbursements. There is no guarantee that
these waivers and/or reimbursements will continue after this date.
Example
This example is designed to help you compare the cost of investing in this Fund
with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table above.
This is an exmple only.
26
<PAGE>
Your actual costs could be higher or lower, depending on the amount you invest,
and on the Fund's actual expenses and performance.
If you sold all your shares at the end of the period, your costs would be:
1 year 3 years 5 years 10 years
Investor A Shares $ooo $ooo $ooo $ooo
Investor B Shares $ooo $ooo $ooo $ooo
Investor C Shares $ooo $ooo $ooo $ooo
If you bought Investor B Shares and didn't sell them, your costs would be:
1 year 3 years 5 years 10 years
Investor B Shares $ooo $ooo $ooo $ooo
27
<PAGE>
Other important information
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page o. The following are
some other risks and information you should consider before you invest:
o Your investment in these Funds is not a bank deposit and is not insured or
guaranteed by Bank of America National Trust and Savings Association (Bank of
America), the Federal Deposit Insurance Corporation or any other government
agency. Your investment may lose money.
o Affiliates of Bank of America are paid for the services they provide to the
Funds.
o Changing investment objectives and policies - The investment objective and
certain investment policies of any Fund can be changed without shareholder
approval. Other investment policies may be changed only with shareholder
approval.
o Holding other kinds of investments - The Funds may hold investments that
aren't part of their principal investment strategies. Please refer to the SAI
for more information.
o Foreign investment risk - Nations Marsico Focused Equities Fund and Nations
Marsico Growth & Income Fund can invest up to 25% of their assets in foreign
securities. The international funds can invest all of their assets in foreign
securities. Funds that invest in foreign securities may be affected by changes
in currency exchange rates and the costs of converting currencies; foreign
government controls on foreign investment, repatriation of capital, and
currency and exchange; foreign taxes; inadequate supervision and regulation of
some foreign markets; volatility from a lack of liquidity; different
settlement practices or delayed settlements in some markets; difficulty
getting complete or accurate information about foreign companies; less strict
accounting, auditing and financial reporting standards than those in the U.S.;
political, economic or social instability; and difficulty enforcing legal
rights outside the U.S.
Securities issued by companies in developing or emerging market countries,
like those in Eastern Europe, the Pacific
28
<PAGE>
Basin and the Far East, may be more sensitive to the risks of foreign
investing. In particular, these countries may experience instability resulting
from rapid social, political and economic development. Many of these countries
are dependent on international trade, which makes them sensitive to world
commodity prices and economic downturns in other countries. Some emerging
countries have a higher risk of currency devaluation, and some countries may
experience long periods of high inflation or rapid changes in inflation rates.
o Investing defensively - A Fund may temporarily hold investments that are not
part of its investment objective or its principal investment strategies to try
to protect it during a market or economic downturn or because of political or
other conditions. A Fund may not achieve its investment objective while it is
investing defensively.
o Portfolio turnover - A Fund that replaces -- or turns over-- more than 100% of
its securities in a year may have higher brokerage costs than a Fund that is
trading less frequently. This may also result in larger distributions of
capital gains to shareholders. All of the Funds generally buy securities for
capital appreciation, investment income, or both, and do not engage in
short-term trading. You'll find the portfolio turnover rate for each Fund in
the Financial highlights.
o Preparing for the year 2000 - The year 2000 is an issue for organizations,
companies and entities around the world that rely on computer systems to
process date-related information. Computer systems that cannot read a
four-digit year may not be able to calculate and process information on or
after January 1, 2000.
All of the Funds' primary service providers have confirmed that they have been
working to make the necessary changes to their systems, and that they expect
them to be adapted in time. There is no guarantee, however, that their
computer systems will ready by the year 2000. If their computer systems are
not ready in time, there could be a negative effect on Fund operations.
A Fund's performance could also be affected if securities it holds decrease in
value because of year 2000 issues. Funds that invest in foreign securities may
be at greater risk because the computer systems of many foreign issuers,
governments or other entities may not be ready for the year 2000.
29
<PAGE>
30
<PAGE>
Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina
28255
How the Funds are managed
Investment adviser
BAAI is the investment adviser to the equity and international funds, as well as
to over 60 other mutual fund portfolios in the Nations Funds Family.
BAAI is a registered investment adviser. It's a wholly owned subsidiary of Bank
of America, which is owned by Bank of America Corporation. Nations Funds pays
BAAI an annual fee for its investment advisory services. The fee is calculated
daily based on the average net assets of each Fund and is paid monthly. BAAI
uses part of this money to pay investment sub-advisers for the services they
provide to Nations Funds.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds until
July 31, 2000. You'll find a discussion of any waiver and/or reimbursement in
the Fund descriptions. There is no assurance that BAAI will continue to waive
and/or reimburse any fees and/or expenses after this date.
The following chart shows the maximum advisory fees BAAI can receive, along with
the actual advisory fees it received during the Funds' last fiscal period (April
1, 1998 to March 31, 1999), after waivers and reimbursements:
Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee paid
advisory fee last fiscal year
Nations Marsico Focused
Equities Fund o.oo o.oo
Nations Marsico Growth &
Income Fund o.oo o.oo
Nations Strategic Equity
Fund o.oo o.oo
Nations International Value
Fund o.oo o.oo
Nations International Equity
Fund o.oo o.oo
Nations Emerging Markets Fund o.oo o.oo
31
<PAGE>
Marsico Capital Management, LLC
1200 17th Street
Suite 1300
Denver, Colorado
80202
Investment sub-advisers
Nations Funds and BAAI have engaged investment sub-advisers to provide
day-to-day portfolio management for the Funds. These sub-advisers function under
the supervision of the Boards of Directors/Trustees of Nations Funds and BAAI.
Marsico Capital Management, LLC
Marsico Capital is a full service investment advisory firm founded by Thomas F.
Marsico in September 1997. It is a registered investment adviser, specializing
in large capitalization stocks, and currently has [$65] billion in assets under
management.
Marsico Management Holdings, LLC, a wholly owned subsidiary of Bank of America,
owns 50% of the equity of Marsico Capital.
Marsico Capital is the investment sub-adviser to:
o Nations Marsico Focused Equities Master Portfolio
o Nations Marsico Growth & Income Master Portfolio
Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is
the portfolio manager responsible for making the day-to-day investment decisions
for these Portfolios. Before forming the company, Mr. Marsico was an executive
vice president and portfolio manager at Janus Capital Corporation. He has more
than 20 years of experience as a securities analyst and portfolio manager.
Performance of other equity funds managed by Thomas Marsico Nations Marsico
Focused Equities Fund and Nations Marsico Growth & Income Fund have been in
operation since December 31, 1997, so they have a short performance history. The
tables below are designed to show you how similar equity funds managed by Thomas
Marsico performed in the past.
The Janus Twenty Fund has an investment objective, policies and strategies that
are very similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed
the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full
discretionary authority for selecting investments for that fund, which had
approximately $6 billion in net assets on August 11, 1997.
32
<PAGE>
The table below shows the returns for the Janus Twenty Fund compared with the
S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of
fees and expenses, except for any account level charges, and assume all
dividends and distributions have been reinvested.
Average annual total returns as of August 7, 1997
Janus Twenty Fund S&P 500
(%) (%)
one year 48.21 46.41
three years 32.07 30.63
five years 20.02 20.98
during the period of
Mr. Marsico's management
(January 31, 1988 to
August 7, 1997) 23.38 18.20
This information is designed to demonstrate the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Janus Growth and Income Fund has an investment objective, policies and
strategies that are very similar to Nations Marsico Growth & Income Fund. Mr.
Marsico managed the Janus Growth and Income Fund from is inception on May 31,
1991 through August 11, 1997. He had full discretionary authority for selecting
investments for that fund, which had approximately $1.7 billion in net assets on
August 11, 1997.
The table below shows the returns for the Janus Growth and Income Fund compared
with the S&P 500 for the period ending August 7, 1997. The S&P 500 is a broadly
based index of 500 large U.S. companies. The returns reflect deductions of fees
and expenses, except for any account level charges, and assume all dividends and
distributions have been reinvested.
Average annual total returns as of August 7, 1997
Janus Growth
and Income
Fund S&P 500
(%) (%)
one year 47.77 46.41
three years 31.13 30.63
five years 21.16 20.98
during the period of
Mr. Marsico's management
32
<PAGE>
(May 31, 1991 to
August 7, 1997) 21.19 18.59
Brandes Investment Partners, L.P.
12750 High Bluff Drive
San Diego, California
92130
This information is designed to demonstrate the historical track record of Mr.
Marsico. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
Brandes Investment Partners, L.P.
Founded in 1974, Brandes is an investment advisory firm with 37 investment
professionals who manage more than $20 billion in assets. Brandes uses a
value-oriented approach to managing international investments, seeking to build
wealth by buying high quality, undervalued stocks.
Brandes is the investment sub-adviser to Nations International Value Master
Portfolio. Brandes' [Large Cap Investment Committee] is responsible for making
the day-to-day investment decisions for the Portfolio.
Performance of other international equity funds and accounts managed by Brandes
Nations International Value Fund has been in operation since [o], so it has a
short performance history. The table below is designed to show you how a similar
composite of international equity accounts managed by Brandes performed over a
longer period in the past.
The Brandes composite has an investment objective, policies and strategies that
are similar to Nations International Value Fund.
The table below shows the returns for the Brandes composite compared with the
MSCI EAFE Index for the periods ending December 31, 1998. The MSCI EAFE Index is
an index of over 1,100 stocks from 21 developed markets in Europe, Australia,
New Zealand and Asia. The index reflects the relative size of each market. The
returns reflect deductions of fees and expenses, except for any account level
charges, and assume all dividends and distributions have been reinvested.
Average annual total returns as of December 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
one year o.oo o.oo
33
<PAGE>
three years o.oo o.oo
five years o.oo o.oo
since inception
(o, o , o) o.oo o.oo
Gartmore Global Partners
One Bank of America Plaza
Charlotte, North Carolina
28255
Average annual total returns as of December 31, 1998
Brandes MSCI EAFE
Composite Index
(%) (%)
1998 o.oo o.oo
1997 20.00 1.78
1996 16.34 6.05
1995 13.75 11.21
1994 (2.98) 7.78
1993 40.86 32.56
1992 6.28 (12.17)
1991 40.17 12.13
This information is designed to demonstrate the historical track record of
Brandes. It does not indicate how the Fund has performed or will perform in the
future.
Performance will vary based on many factors, including market conditions, the
composition of the Fund's holdings and the Fund's expenses.
The Brandes composite includes Brandes International Equity Fund and
international equity accounts managed by Brandes. The accounts don't pay the
same expenses that mutual funds pay and aren't subject to the diversification
rules, tax restrictions and investment limits under the 1940 Act or Subchapter M
of the Internal Revenue Code. Returns could have been lower if the composite had
been subject to these expenses and regulations. The aggregate returns of the
accounts in the composite don't reflect the returns of any particular account of
Brandes.
Gartmore Global Partners
Gartmore is a global asset manager dedicated to serving the needs of U.S. based
investors. Gartmore was formed in 1995 as a registered investment adviser and
manages more than $o billion in assets.
Gartmore is a joint venture structured as a general partnership between NB
Partner Corp., a wholly owned subsidiary of Bank of America, and Gartmore U.S.
Limited, an indirect, wholly owned subsidiary of Gartmore Investment Management
plc, a UK holding company for a leading UK-based international fund management
group of companies.
Gartmore follows a growth philosophy, which is reflected in its active
management of market allocation and stock selection.
Gartmore is one of three investment sub-advisers to Nations International Equity
Master Portfolio and is the investment sub-
35
<PAGE>
adviser to Nations Emerging Markets Fund.
Nations International Equity Master Portfolio is co-managed by five portfolio
managers:
Philip Ehrmann has been responsible since June 1998 for the Master Portfolio's
investments in developing countries. He has also been the principal portfolio
manager for Nations Emerging Markets Fund since he joined Gartmore in 1995, and
is head of the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr.
Ehrmann was the director of emerging markets for Invesco in London. He began his
career in 1981 as an institutional stock broker with Rowe & Pitman Inc. and also
spent a brief period with Prudential Bache Securities as an institutional
salesman before joining Invesco in 1984. Mr. Ehrmann graduated from the London
School of Economics with a degree in Economics, Industry and Trade.
Seok Teoh has been responsible since June 1998 for the Master Portfolio's
investments in Asia. She has also been principal portfolio manager of Nations
Pacific Growth Fund since it was formed in June 1995. Ms. Teoh has been with
Gartmore since 1990 as the London based manager of its Far East Team.
Previously, she managed four equity funds for Rothschild Asset Management in
Tokyo and Singapore, and was also responsible for Singaporean and Malaysian
equity sales at Overseas Union Bank Securities in Singapore. Ms. Teoh is native
to Singapore and is fluent in Mandarin and Cantonese. She received an Economics
degree from the University of Durham.
Mark Fawcett has been responsible since June 1998 for the Master Portfolio's
investments in Japan. He is also senior investment manager for the Gartmore
Japanese Equities Team and has specific responsibility for large stock research.
Before joining Gartmore in 1991, he worked on the Far East desk of Provident
Mutual managing funds invested in Japan. He graduated from Oxford University in
1986 with an honors degree in Mathematics and Philosophy.
Stephen Jones has been responsible for the Master Portfolio's investments in
Europe since 1998. He is also head of Gartmore European Equities. Mr. Jones
joined Gartmore in 1994 and was appointed head of the European equity team in
1995. He began his career at The Prudential in 1984, and became a European
equities investment manager in 1987, focusing on France,
36
<PAGE>
INVESCO Global Asset
Management (N.A), Inc.
1315 Peachtree Street, N.E.
Atlanta, Georgia
30309
Putnam Investment
Management, Inc.
One Post Office Square
Boston, Massachusetts
02109
Belgium and Switzerland. He graduated from Manchester University in 1984 with an
honors degree in Economics.
Stephen Watson has been responsible since June 1998 for allocating the Master
Portfolio's assets among the various regions in which it invests, and for
determining the Master Portfolio's investments in regions not covered by the
other portfolio managers. He was the Master Portfolio's sole portfolio manager
from February 1995 to June 1998. Mr. Watson joined Gartmore in 1993 as a global
fund manager, and is the chief investment officer of Gartmore Global Partners
and a member of Gartmore's global policy group. Before joining Gartmore, he was
a director and global fund manager with James Capel Fund Managers, London, as
well as client service manager for international clients. He was in Capel-Cure
Myers' portfolio management division from 1980 to 1987, and began his career in
1976 with Samuel Motagu. He is a member of the Securities Institute.
Nations Emerging Markets Fund is managed by Philip Ehrmann, the head of Gartmore
Emerging Markets Team. He has managed the Fund since 1995. He also co-manages
Nations International Equity Master Portfolio.
INVESCO Global Asset Management (N.A), Inc.
Invesco is a division of INVESCO Global, a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company, which is also located in London.
Invesco is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Invesco's International Equity Portfolio Management Team is
responsible for making the day-to-day investment decisions for its portion of
the Master Portfolio.
Putnam Investment Management, Inc.
Putnam is a wholly owned subsidiary of Putnam Investments, Inc., which, except
for shares held by employees, is owned by Marsh & McLennan Companies.
Putnam is one of three investment sub-advisers to Nations International Equity
Master Portfolio. Putnam's Core International Equity Group is responsible for
making the day-to-day investment decisions for its portion of the Master
Portfolio.
37
<PAGE>
Stephens Inc.
111 Center Street
Little Rock, Arkansas
72201
First Data Investor Services
Group, Inc.
One Exchange Place
Boston, Massachusetts
02109
Other service providers
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer. Stephens may pay service fees or commissions to companies that
assist investors in buying shares of the Funds.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee for their services, plus certain out of pocket expenses. The fee is
paid monthly, and is calculated as an annual percentage of the average daily net
assets of the Funds, as follows:
Domestic equity funds 0.23%
International funds 0.22%
First Data Investor Services Group, Inc. (First Data) is the transfer agent for
the Funds' shares. Its responsibilities include processing purchases, sales and
exchanges, calculating and paying distributions, keeping shareholder records,
preparing account statements and providing customer service.
38
<PAGE>
About your investment
We've used the term, investment professional, to refer to the person who has
assisted you with buying Nations Funds. Selling agent means the company that
employs your investment professional. Selling agents include banks, brokerage
firms, mutual fund dealers and other financial institutions, including
affiliates of Bank of America, that have signed an agreement with us or
Stephens.
For more information about how to choose a share class, contact your investment
professional or call us at 1-800-321-7854.
For more information about distribution (12b-1) and shareholder servicing fees,
see How selling agents are paid.
Choosing a share class
Before you can invest in the Funds, you'll need to choose a share class. There
are three classes of shares for each Fund offered by this prospectus. Each class
has its own sales charges and fees. The table below compares the charges and
fees of the share classes.
Investor A Investor B Investor C
Shares Shares Shares
Maximum amount
you can buy no limit $250,000 no limit
Maximum front-end
sales charge 5.75% none none
Maximum deferred
sales charge none(1) 5.00% 1.00%
Redemption fee none(2) none none
Maximum annual
shareholder 0.25% 0.75% distribution 0.75% distribution
distribution (12b-1)combined (12b-1)fee (12b-1)fee
and servicing fees fee 0.25% service fee 0.25% service fee
Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million
or more of Investor A Shares and sell them within two years of buying them.
Please see page o for details.
(2)A 1.00% redemption fee applies to investors who bought $1 million or more of
Investor A Shares between July 31, 1997 and November 15, 1998 and sell them
within 18 months of buying them. The fee is paid to the Fund. Please see page o
for details.
The share class you choose will depend on how much you're investing, how long
you're planning to stay invested, and how you prefer to pay the sales charge.
The total cost of your investment over the time you expect to hold your shares
will be affected by the distribution (12b-1) and shareholder servicing fees, as
well as by the amount of any front-end sales charge or CDSC that applies, and
when you're required to pay the charge.
Investor A Shares have a front-end sales charge, which is deducted when you buy
your shares. This means that a smaller amount is invested in the Funds, unless
you qualify for a waiver
39
<PAGE>
or reduction of the sales charge. However, Investor A Shares have lower
distribution (12b-1) and shareholder servicing fees than Investor B and Investor
C Shares, which means that Investor A Shares can be expected to earn relatively
higher dividends per share.
Investor B Shares have limits on how much you can invest. When you buy Investor
B or Investor C Shares, the full amount is invested in the Funds. However, you
may pay a CDSC when you sell your shares. Over time, Investor B and Investor C
Shares can accumulate distribution (12b-1) and shareholder servicing fees that
are equal to or more than the front-end sales charge, and distribution (12b-1)
and shareholder servicing fees you would pay for Investor A Shares. Although the
full amount of your purchase is invested in the Funds, any positive investment
return on this money may be partially or fully offset by the expected higher
annual expenses of Investor B and Investor C Shares. You should also consider
the conversion feature for Investor B Shares, which is described in About
Investor B Shares.
40
<PAGE>
The offering price per share is the net asset value per share plus any sales
charge that applies.
The net asset value per share is the price calculated for a Fund at the end of
every business day.
ABOUT INVESTOR A SHARES
There is no limit to the amount you can invest in Investor A Shares. You may pay
a front-end sales charge when you buy your shares, or in some cases, a
contingent deferred sales charge (CDSC) when you sell your shares.
FRONT-END SALES CHARGE
o You'll pay a front-end sales charge when you buy Investor A Shares, unless:
o you qualify for a reduction or waiver of the sales charge. You can find out if
you qualify for a reduction or waiver in WHEN YOU MIGHT NOT HAVE TO PAY A
SALES CHARGE.
o you're reinvesting dividends or distributions
The sales charge you'll pay depends on the amount you're investing -- the larger
the investment, the smaller the sales charge.
Amount retained
Sales charge Sales charge by selling agents
as a % of the as a % of the as a % of the
offering price net asset value offering price
Amount you bought per share per share per share
$0 - $49,999 5.75% 6.10% 5.00%
$50,000 - $99,999 4.50% 4.71% 3.75%
$100,000 - $249,999 3.50% 3.63% 2.75%
$250,000 - $499,999 2.50% 2.56% 2.00%
$500,000 - $999,999 2.00% 2.04% 1.75%
$1,000,000 or more 0.00% 0.00% minimum 1.00%(1)
(1) 1.00% on the first $3,000,000, plus 0.50% on the next $47,000,000, plus
0.25% on amounts over $50,000,000. Stephens pays the amount retained by
selling agents on investments of $1,000,000 or more, but may be reimbursed
when a CDSC is deducted if the shares are sold within two years from the
time they were bought. Please see HOW SELLING AGENTS ARE PAID For more
information.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC if you buy $1,000,000 or more of Investor A Shares and sell
them within two years of buying them.
If you sell your shares You'll pay a CDSC of
during the first year you own them 1.00%
during the second year you own them 0.50%
41
<PAGE>
The CDSC is calculated from the day your purchase is accepted (the TRADE DATE).
We deduct the CDSC from the market value or purchase price of the shares,
whichever is lower.
You won't pay a CDSC on any increase in net asset value since you bought your
shares, or on any shares you receive from reinvested dividends and
distributions. We'll sell any shares that aren't subject to the CDSC first.
We'll then sell shares that result in the lowest CDSC.
Redemption fee
There are two situations when we'll charge a 1% redemption fee on the sale of
Investor A Shares:
o if you bought $1,000,000 or more Investor A Shares between July 31, 1997 and
November 15, 1998 and sell them within 18 months of buying them
o if an employee benefit plan made its initial investment in Investor A Shares
between July 31, 1997 and November 15, 1998 and sold those shares within 18
months of buying them because the plan sold all of its Nations Funds holdings.
This fee is deducted from the amount sold and is paid to the Fund. The Fund can
reduce or cancel the fee at any time.
42
<PAGE>
ABOUT INVESTOR B SHARES
You can buy up to $250,000 of Investor B Shares in total. You don't pay a sales
charge when you buy Investor B Shares, but you may have to pay a CDSC when you
sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC when you sell your Investor B Shares, unless:
o you bought the shares on or after January 1, 1996 and before August 1, 1997
o you received the shares from reinvested dividends and distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify for a
waiver on page 00.
The CDSC you pay depends on when you bought your shares, how much you bought in
some cases, and how long you held them.
Your selling agent receives a commission when you buy Investor B Shares. Please
see HOW SELLING AGENTS ARE PAID for more information.
43
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
If you sell your shares during You'll pay a CDSC of
the following year:
-----------------------------------------------------------------------------------------------
Shares you
bought Shares
on or after you
Shares you 1/1/1996 and bought
bought after Shares you bought between 8/1/1997 and 11/15/1998 before before
11/15/1998 in the following amounts: 8/1/1997 1/1/1996
$0 - $249,999 $250,000 - $499,999 $500,000 - $999,999
<S> <C> <C> <C> <C> <C> <C>
the first year you own them 5.0% 5.0% 3.0% 2.0% zero 5.0%
the second year you own them 4.0% 4.0% 2.0% 1.0% zero 4.0%
the third year you own them 3.0% 3.0% 1.0% zero zero 3.0%
the fourth year you own them 3.0% 3.0% zero zero zero 2.0%
the fifth year you own them 2.0% 2.0% zero zero zero 2.0%
the sixth year you own them 1.0% 1.0% zero zero zero 1.0%
after six years of owning them zero zero zero zero zero zero
</TABLE>
44
<PAGE>
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC
from the market value or purchase price of the shares, whichever is lower. We'll
sell any shares that aren't subject to the CDSC first. We'll then sell shares
that result in the lowest CDSC.
ABOUT THE CONVERSION FEATURE
Investor B Shares generally convert automatically to Investor A Shares according
to the following schedule:
Will convert to Investor A Shares after
Investor B Shares you bought you've owned them for
after November 15, 1998 eight years
between August 1, 1997
and November 15, 1998
$0 - $249,000 nine years
$250,000 - $499,999 six years
$500,000 - $999,999 five years
before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of
Investor A Shares, which can help increase total returns.
Here's how the conversion works:
o We won't convert your shares if you tell your investment professional, selling
agent or the transfer agent within 90 days before the conversion date that you
don't want your shares to be converted. Remember, it's in your best interest
to convert your shares because Investor A Shares have lower expenses.
o Shares are converted at the end of the month in which they become eligible for
conversion.
o You'll receive the same dollar value of Investor A Shares as the Investor B
Shares that were converted. No sales charge or other charges apply.
o Any Investor B Shares you received from reinvested dividends or distributions
will convert to Investor A Shares at the same time the original purchase is
converted.
o If you exchange Investor B Shares of Funds other than money market funds, the
conversion date is based on the trade date of your original purchase.
45
<PAGE>
ABOUT INVESTOR C SHARES
There is no limit to the amount you can invest in Investor C Shares. You don't
pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when
you sell them.
CONTINGENT DEFERRED SALES CHARGE
You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of
buying them, unless:
o you received the shares from reinvested dividends and distributions
o you qualify for a waiver of the CDSC. You can find out how to qualify for a
waiver on page 00.
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC
from the market value or purchase price of the shares, whichever is lower. We'll
sell any shares that aren't subject to the CDSC first. We'll then sell shares
that result in the lowest CDSC.
Your selling agent receives a commission when you buy Investor C Shares. Please
see HOW SELLING AGENTS ARE PAID for more information.
46
<PAGE>
Please contact your investment professional for more information about
reductions and waivers of sales charges.
You should tell your investment professional that you may qualify for a
reduction or a waiver at the time you make the transaction.
We can change or cancel these terms at any time. Any change or cancellation
applies only to future purchases.
WHEN YOU MIGHT NOT HAVE TO PAY A SALES CHARGE
FRONT-END SALES CHARGES
(Investor A Shares)
There are three ways you can lower the front-end sales charge you pay on
Investor A Shares:
o COMBINE PURCHASES YOU'VE ALREADY MADE
Rights of accumulation allow you to combine the value of Investor A, Investor
B and Investor C Shares you already own (except money market funds and index
funds) with Investor A Shares you've recently bought to calculate the sales
charge. You'll pay a sales charge on the current net asset value or the
original purchase cost, whichever is higher.
o COMBINE PURCHASES YOU PLAN TO MAKE
By signing a letter of intent, you can combine the value of shares you already
own with the value of shares you plan to buy over a 13-month period to
calculate the sales charge.
o You can choose to start the 13-month period up to 90 days before you sign
the letter of intent.
o Each purchase you make will receive the sales charge that applies to the
total amount you plan to buy.
o If you don't buy as much as you planned within the period, you must pay the
difference between the charges you've paid and the charges that actually
apply to the shares you've bought.
o Your first purchase must be at least 5% of the minimum amount for the sales
charge level that applies to the total amount you plan to buy.
o If the purchase you've made later qualifies for a reduced sales charge
through the 90-day backdating provisions, we'll make an adjustment for the
lower charge when the letter of intent expires. Any adjustment will be used
to buy additional shares at the reduced sales charge.
o COMBINE PURCHASES WITH FAMILY MEMBERS
You can receive a quantity discount by combining purchases of Investor A
Shares that you, your spouse and children under age 21 make on the same day.
Some distributions or payments from the dissolution of certain qualified plans
also qualify for the quantity discount. Purchases of money market funds don't
qualify.
47
<PAGE>
The following people can buy Investor A Shares without paying a front-end sales
charge:
o full-time employees and retired employees of Bank of America Corporation (and
its predecessors), its affiliates and subsidiaries and the immediate families
of these people
o accounts opened by a bank, trust company or thrift institution, acting as a
fiduciary
o individuals receiving a distribution from a Bank of America trust or other
fiduciary account may use the proceeds of that distribution to buy Investor A
Shares without paying a front-end sales charge, as long as the proceeds are
invested through a trust account established with another trustee and invested
in the Funds within 90 days. Investors who transfer their proceeds to a
fiduciary account may continue to buy shares in the Funds without paying a
front-end sales charge.
o Nations Funds' Trustees, Directors and employees of its investment
sub-advisers
o registered broker/dealers that have entered into a Nations Fund dealer
agreement with Stephens may buy Investor A Shares without paying a front-end
sales charge for their investment account only
o registered personnel and employees of these broker/dealers may buy Investor A
Shares without paying a front-end sales charge according to the internal
policies and procedures of their employer as long as these purchases are made
for their own investment purposes
o employees or partners of any service provider to the Funds
o investors who buy through accounts established with certain fee-based
investment advisers or financial planners, including Nations Funds Personal
Investment Planner accounts, wrap fee accounts and other managed agency/asset
allocation accounts
The following plans can buy Investor A Shares without paying a front-end sales
charge:
o pension, profit-sharing or other employee benefit plans established under
Section 401 or Section 457 of the tax code
o employee benefit plans created according to Section 403(b) of the tax code and
sponsored by a non-profit organization qualified under Section 501(c)(3) of
the tax code. To qualify for the waiver, the plan must:
o have at least $500,000 invested in Investor A Shares of Nations Funds
(except money market funds), or
48
<PAGE>
o sign a letter of intent to buy at least $500,000 of Investor A Shares of
Nations Funds (except money market funds), or
o be an employer-sponsored plan with at least 100 eligible participants, or
o be a participant in an alliance program that has signed an agreement with
the Fund or a selling agent. Stephens may pay selling agents up to 1.00% of
the net asset value of Investor A Shares bought without a sales charge.
Stephens may be reimbursed through any CDSC that applies.
You can also buy Investor A Shares without paying a sales charge if you buy the
shares within 120 days of selling the same Fund. This is called the
reinstatement privilege. You can invest up to the amount of the sale proceeds.
We'll credit your account with any CDSC paid when you sold the shares. The
reinstatement privilege does not apply to any shares you bought through a
previous reinstatement. First Data, Stephens or their agents must receive your
written request within 120 days after you sell your shares.
CONTINGENT DEFERRED SALES CHARGES
(Investor A, Investor B and Investor C Shares)
You won't pay a CDSC on the following transactions:
o shares sold following the death or disability (as defined in the Internal
Revenue Code of 1986, as amended (the tax code)) of a shareholder, including a
registered joint owner
o the following retirement plan distributions:
o lump-sum or other distributions from a qualified corporate or self- employed
retirement plan following the retirement (or following attainment of 59 1/2
in the case of a "key employee" of a "top heavy" plan)
o distributions from an IRA or Custodial Account under Section 403(b)(7) of
the tax code, following attainment of age 59 1/2
o a tax-free return of an excess contribution to an IRA
o distributions from a qualified retirement plan that aren't subject to the
10% additional federal withdrawal tax under Section 72(t)(2) of the tax code
o payments made to pay medical expenses which exceed 7.5% of income, and
distributions made to pay for insurance by an individual who has separated
from employment and who has
49
<PAGE>
received unemployment compensation under a federal or state program for at
least 12 weeks
o shares sold under our right to liquidate a shareholder's account, including
instances where the aggregate net asset value of Investor A, Investor B or
Investor C Shares held in the account is less than the minimum account size
o shares sold because Nations Funds combine with another registered company
through a merger, acquisition of assets or other transaction
o withdrawals made under the Automatic Withdrawal Plan described in BUYING,
SELLING AND EXCHANGING SHARES, if the total withdrawals of Investor A,
Investor B or Investor C Shares made in a year are less than 12% of the total
value of those shares in your account. A CDSC may only apply to Investor A
Shares if you bought more than $1,000,000.
We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought
before September 30, 1994 by current or retired employees of Bank of America and
its affiliates, or by current or former trustee or director of the Nations Funds
or other management companies managed by Bank of America.
You won't pay a CDSC on the sale of Investor B or Investor C Shares if you
reinvest any of the proceeds in the same Fund within 120 days of the sale. This
is called the reinstatement privilege. You can invest up to the amount of the
sale proceeds. We'll credit your account with any CDSC paid when you sold the
shares. The reinstatement privilege does not apply to any shares you bought
through a previous reinstatement. First Data, Stephens or their agents must
receive your written request within 120 days after you sell your shares.
50
<PAGE>
If you don't have an investment professional, call us at 1-800-321-7854. We'll
be pleased to recommend investment professionals in your area.
Your selling agent may have different limits, charge other fees, or have
different policies for buying, selling and exchanging shares than those
described in this prospectus.
Buying, selling and exchanging shares
You can invest in the Funds through your selling agent or directly from Nations
Funds.
We encourage you to consult with an investment professional who can open an
account for you with a selling agent and help you with your investment
decisions. Once you have an account, you can buy, sell and exchange shares by
contacting your investment professional or selling agent. They will look after
any paperwork that's needed to complete a transaction and send your order to us.
Some people prefer to invest directly with Nations Funds. You can find out how
to open an account, and buy, sell and exchange shares by writing us or calling
us at 1-800-321-7854.
The table on the next page summarizes some key information about buying, selling
and exchanging shares. These are described in more detail on the following
pages. You'll find sales charges and other fees that apply to these transactions
in CHOOSING A SHARE CLASS.
Please contact your investment professional or selling agent, or call us at
1-800-321-7854 if you have any questions about how to place an order or set up
one of our automatic plans.
51
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ways to buy, sell How much you can buy, sell or exchange Other things to know
or exchange
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buying shares In a lump sum o minimum initial investment: There is no limit to the amount you can
o $1,000 for regular accounts invest in Investor A and C Shares. You can
o $500 for traditional and Roth IRA accounts invest up to $250,000 in Investor B Shares
o [$250 for non-working spousal IRAs] in total.
o [$000 for education IRAs]
o $250 for certain fee-based accounts
o no minimum for certain retirement plan
accounts like 401(k) plans and SEP
accounts, but other restrictions apply.
minimum additional investment:
o $100 for all accounts
Using our o minimum initial investment: You can buy shares monthly, twice a month or
Systematic o $100 quarterly, using automatic transfers from
Investment o minimum additional investment: your bank account.
Plan o $50
- ------------------------------------------------------------------------------------------------------------------------------------
o you can sell up to $50,000 of your We'll deduct any CDSC from the amount
shares by telephone, otherwise there you're selling and send you or your
are no limits to the amount you can sell selling agent the balance, usually
o other restrictions may apply to within three business days of
Selling shares In a lump sum withdrawals from retirement plan accounts receiving your order.
Using our Automatic o minimum $25 Your account balance must be at least
Withdrawal Plan per withdrawal $10,000 to set up the plan. You can
make withdrawals monthly, twice a
month or quarterly. We'll send your
money by check or deposit it directly
to your bank account. No CDSC is
deducted if you withdraw 12% or less
of the value of your shares in a
class.
- -----------------------------------------------------------------------------------------------------------------------------------
Exchanging shares In a lump sum o minimum $1,000 per exchange Investor A Shares:
o You can exchange Investor A Shares of
a Fund for Investor A Shares of all
other Nations Funds, except index
funds. You generally won't pay a
front-end sales charge on the shares
you're buying, or a CDSC or redemption
fee on the shares
52
<PAGE>
you're selling.
Investor B Shares:
o You can exchange Investor B Shares
of a Fund for Investor B Shares of
all other Nations Funds, or for
Investor C Shares of money market
funds. You won't pay a CDSC on the
shares you're selling.
Investor C Shares:
o You can exchange Investor C Shares
of a Fund, except money market
funds, for Investor C Shares of all
other Funds, except money market
funds or index funds, or for Daily
Shares of money market funds. You
won't pay a CDSC on the shares
you're selling.
Using our Automatic o minimum $25 o Not available for Investor B Shares.
Exchange Feature per exchange o You must already have an investment in
the Funds you want to buy and sell. You
can make exchanges monthly or quarterly.
53
<PAGE>
</TABLE>
A business day is any day that the New York Stock Exchange (NYSE) is open. A
business day ends at the close of regular trading on the New York Stock Exchange
(NYSE), usually at 4:00 p.m. Eastern time. If the NYSE closes early, the
business day ends as of the time the NYSE closes.
The NYSE is closed on weekends and on the following national holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
HOW SHARES ARE PRICED
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share for each class of each
Fund at the end of each business day. First, we calculate the net asset value
for each class of a Fund by determining the value of the Fund's assets in the
class and then subtracting its liabilities. Next, we divide this amount by the
number of shares that investors are holding in the class.
o VALUING SECURITIES IN A FUND
The value of a Fund's assets is based on the total market value of all of the
securities it holds. The prices reported on stock exchanges and securities
markets around the world are usually used to value securities in a Fund. If
prices aren't readily available, we'll base the price of a security on its fair
market value. We use the amortized cost method, which approximates market value,
to value short-term investments maturing in 60 days or less. International
markets may be open on days when U.S. markets are closed. The value of foreign
securities owned by a Fund could change on days when Fund shares may not be
bought or sold.
HOW ORDERS ARE PROCESSED
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, First Data or their agents before the end of a business
day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive
that day's net asset value per share. Orders received after the end of a
business day will receive the next business day's net asset value per share. The
business day that applies to your order is also called the TRADE DATE. We may
refuse any order. If this happens, we'll return any money we've received to your
selling agent.
[The following information will go in a box.]
TELEPHONE ORDERS
You can place orders to buy, sell or exchange by telephone if you complete the
telephone authorization section of our account application and send it to us.
Here's how telephone orders work:
o If you sign up for telephone orders after you open your account, you must have
your signature guaranteed.
o Telephone orders may not be as secure as written orders. You may be
responsible for any loss resulting from a telephone order.
o We'll take reasonable steps to confirm that telephone instructions are
genuine. For example, we require proof of your identification before we
54
<PAGE>
will act on instructions received by telephone and may record telephone
conversations. If we and our service providers don't take these steps, we may
be liable for any losses from unauthorized or fraudulent instructions.
o Telephone orders may be difficult to complete during periods of significant
economic or market change.
[end of box]
55
<PAGE>
The offering price per share is the net asset value per share plus any sales
charge that applies.
The net asset value per share is the price calculated for a Fund at the end of
every business day.
BUYING SHARES
Here are some general rules for buying shares:
o You buy Investor A Shares at the offering price per share. You buy Investor B
and Investor C Shares at the net asset value per share.
o If we don't receive your money within three business days of receiving your
order, we'll refuse the order and notify your selling agent.
o Selling agents are responsible for sending orders to us and ensuring we
receive your money on time.
o Shares you buy are recorded on the books of the Fund. We don't issue
certificates unless you ask for them in writing, and we don't issue
certificates for fractions of shares.
MINIMUM INITIAL INVESTMENT
The minimum initial amount you can buy is usually $1,000.
If you're buying shares through one of the following accounts or plans, the
minimum initial amount you can buy is:
o $500 for traditional and Roth individual retirement accounts (IRAs)
o [$250 for non-working spousal IRAs]
o [$000 for education IRAs]
o $250 for accounts set up with some fee-based investment advisers or financial
planners, including wrap fee accounts and other managed accounts
o $100 for Systematic Investment Plans
o There is no minimum for 401(k) plans, simplified employee pension plans
(SEPs), salary reduction-simplified employee pension
plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs),
salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However,
the value of your account must be at least $1,000 for 401(k) plans or $500 for
the other plans within one year after you open your account. Otherwise, we may
sell the shares in your account if we give you 60 days notice in writing.
MINIMUM ADDITIONAL INVESTMENT
You can make additional purchases of as little as $100, or $50 if you use our
Systematic Investment Plan.
[The following information will go in a box]
56
<PAGE>
SYSTEMATIC INVESTMENT PLAN
You can make regular purchases of $50 or more using automatic transfers from
your bank account to the Funds you choose. You can contact your investment
professional or us to set up the plan.
Here's how the plan works:
o You can buy shares twice a month, monthly or quarterly.
o You can choose to have us transfer your money on or about the 15th or the last
day of the month.
o Some exceptions may apply to employees of Bank of America and its affiliates,
and to plans set up before August 0, 1997. For details, please contact your
investment professional.
[END OF BOX]
57
<PAGE>
For more information about telephone orders, see page 00.
SELLING SHARES
Here are some general rules for selling shares:
o We'll deduct any CDSC from the amount you're selling and send you the balance.
o If you're selling your shares through a selling agent, we'll normally send the
sale proceeds by federal funds wire to your selling agent or to you within
three business days after Stephens, First Data or their agents receive your
order. Your selling agent is responsible for depositing the sale proceeds to
your account on time.
o If you're selling your shares directly through us, we'll send the sale
proceeds by mail or wire them to your bank account within three business days
after the Fund receives your order.
o You can sell up to $50,000 of shares by telephone if you qualify for telephone
orders.
o If you paid for your shares with a check that wasn't certified, we'll hold the
sale proceeds when you sell those shares for at least 15 days, or until the
check has cleared.
o If you hold any shares in certificate form, you must sign the certificates (or
send a signed stock power with them) and send them to First Data. Your
signature must be guaranteed unless you've made other arrangements with us. We
may ask for any other information we need to prove that the order is properly
authorized.
o Under certain circumstances allowed under the 1940 Act, we can pay you in
securities or other property when you sell your shares, or delay payment of
the sale proceeds for up to seven days.
We may sell your shares:
o if the value of your account after you sell any shares falls below $500. We'll
give you 60 days notice in writing if we're going to do this
o if your selling agent tells us to sell your shares under arrangements made
between the selling agent and its customers
o under certain other circumstances allowed under the 1940 Act.
[THE FOLLOWING INFORMATION WILL GO IN A BOX.]
AUTOMATIC WITHDRAWAL PLAN
The Automatic Withdrawal Plan lets you withdraw $25 or more every month, every
quarter or every year. You can contact your investment professional or
58
<PAGE>
us to set up the plan.
Here's how the plan works:
o Your account balance must be at least $10,000 to set up the plan. o If you set
up the plan after you've opened your account, your signature must be
guaranteed.
o You can choose to have us transfer your money on or about the 15th or the 25th
of the month.
o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you
withdraw 12% or less of the value of those shares in a year. Otherwise, we'll
deduct any CDSC from the withdrawals.
o We'll send you a check or deposit the money directly to your bank account. o
You can cancel the plan by giving your selling agent or us 30 days notice in
writing.
It's important to remember that if you withdraw more than your Fund is earning,
you'll eventually use up your original investment.
[END OF BOX]
59
<PAGE>
You should make sure you understand the investment objectives and policies of
the Fund you're exchanging into. Please read its prospectus carefully.
EXCHANGING SHARES
You can sell shares of a Fund to buy shares of another Nations Fund. This is
called an exchange. You might want to do this if your investment goals or
tolerance for risk changes.
Here's how exchanges work:
o You must exchange at least $1,000, or $25 if you use our Automatic Exchange
Feature.
o The rules for buying a Fund, including any minimum investment requirements,
apply to exchanges into that Fund.
o You may only make an exchange into a Fund that is legally sold in your state
of residence.
o You generally may only make an exchange into a Fund that is accepting
investments.
o We may limit the number of exchanges you can make within a specified period of
time.
o We may change or cancel your right to make an exchange by giving the amount of
notice required by regulatory authorities (currently 60 days for a material
change or cancellation), unless we are required to do so because of unusual
circumstances.
o You cannot exchange any shares you own in certificate form until First Data
has received the certificate and deposited the shares to your account.
EXCHANGING INVESTOR A SHARES
You can exchange Investor A Shares of a Fund for Investor A Shares of all other
Nations Funds, except index funds.
Here are some rules for exchanging Investor A Shares:
o You won't pay a front-end sales charge on the shares of the Fund you're buying
if: o you're selling shares of a Fund other than a money market fund, and o
the maximum sales charge that applies to the shares you're buying is equal to
or less than:
o the sales charge you paid on the shares of the Fund you're selling, plus o any
sales charge you paid on Investor A Shares of any other Fund that you
previously exchanged to buy those shares. You must tell First Data, Stephens
or their agents about the previous exchange.
o You won't pay a CDSC on the shares you're selling. Any
60
<PAGE>
CDSC will be deducted later on when you sell the shares you received from the
exchange. The CDSC at that time will be based on the period from when you
bought the original shares until when you sold the shares you received from
the exchange.
o You won't pay a redemption fee on the shares you're selling. Any redemption
fee will be deducted later on when you sell the shares you received from the
exchange. The fee will be based on the period from when you bought the
original shares until you sold the shares you received from the exchange,
unless you received shares of a money market fund. In that case, the fee will
only be based on the period from when you bought the original shares until you
sold them. Any redemption fee will be paid to the original Fund.
EXCHANGING INVESTOR B SHARES
You can exchange Investor B Shares of a Fund for Investor B Shares of all other
Nations Funds, or for Investor C Shares of money market funds.
You won't pay a CDSC on the shares you're selling. Any CDSC will be deducted
later on when you sell the shares you received from the exchange. The CDSC will
be based on the period from when you bought the original shares until you sold
the shares you received from the exchange, unless you received Investor C Shares
of a money market fund. In that case, the CDSC will only be based on the period
from when you bought the original shares until you sold them.
EXCHANGING INVESTOR C SHARES
You can exchange Investor C Shares of a Fund, except money market funds, for:
o Investor C Shares of all other Nations Funds, except money market funds or
index funds
o Daily Shares of money market funds
You won't pay a CDSC on the shares you're selling. Any CDSC will be deducted
later on when you sell the shares you received from the exchange. The CDSC will
be based on the period from when you bought the original shares until you sold
the shares you received from the exchange, unless you received Daily Shares of a
money market fund. In that case, the CDSC will only be based on the period from
when you bought the original shares until you sold them.
61
<PAGE>
You'll pay a CDSC when you sell your shares within 30 days of receiving them
from an exchange. Notwithstanding the foregoing, if a shareholder redeems shares
acquired through an exchange, the shareholder will be subject to the highest
CDSC applicable to any shares that were exchanged within the 30 days prior to
the redemption.
[THE FOLLOWING INFORMATION WILL GO IN A BOX.]
AUTOMATIC EXCHANGE FEATURE
The Automatic Exchange Feature lets you exchange $25 or more of Investor A or
Investor C Shares every month or every quarter. You can contact your investment
professional or us to set up the plan.
Here's how automatic exchanges work:
o Send your request to First Data in writing or call [First Data's telephone
number].
o You must already have an investment in the Funds you want to buy and sell.
o You can choose to have us transfer your money on or about the 15th or the last
day of the month in which the exchange is scheduled to occur.
o The rules for making exchanges apply to automatic exchanges.
[END OF BOX]
62
<PAGE>
The distribution fee is often referred to as a "12b-1"fee because it's paid
through a plan approved under Rule 12b-1 of the 1940 Act.
Your selling agent may charge other fees related to services provided to your
account.
How selling agents are paid
Your selling agent usually receives compensation when you invest in the Funds.
The kind and amount of the compensation depends on the share class you invest
in.
Selling agents typically pay a portion of the compensation they receive to their
investment professionals.
COMMISSIONS
Your selling agent may receive a commission when you buy a Fund. The amount of
the commission depends on which share class you choose:
o up to [5.00%] of the offering price per share of Investor A Shares. The
commission is paid from the sales charge we deduct when you buy your shares.
o up to [4.00%] of the net asset value per share of Investor B Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly.
o up to [1.00%] of the net asset value per share of Investor C Shares. The
commission is not deducted from your purchase -- we pay your selling agent
directly.
DISTRIBUTION (12B-1) AND SHAREHOLDER SERVICING FEES
Selling agents may receive annual distribution (12b-1) and shareholder servicing
fees for selling shares and providing services to investors.
Maximum annual distribution (12b-1)
and shareholder servicing fees
(as an annual % of average daily net assets)
Investor A Shares 0.25% combined distribution (12b-1) and servicing fee
Investor B Shares 0.75% distribution (12b-1) fee , 0.25% servicing fee
Investor C Shares 0.75% distribution (12b-1) fee, 0.25% servicing fee
Fees are calculated daily and deducted monthly. Over time, these fees will
increase the cost of your investment, and may cost you more than any sales
charges you may pay.
We pay these fees according to our agreements with selling agents for as long as
the plan continues, while they are eligible to receive the fees. We and Stephens
may reduce or discontinue payments at any time.
63
<PAGE>
receive the fees. We and Stephens may reduce or discontinue payments at any
time.
OTHER COMPENSATION
Selling agents may also receive:
o a bonus, incentive or other compensation if they sell a minimum dollar amount
of shares of the Funds during a specified period
o additional amounts on all sales of shares:
o up to 1.00% of the offering price per share of Investor A Shares
o up to 4.00% of the net asset value per share of Investor B Shares
o up to 0.75% of the net asset value per share of Investor C Shares
o non-cash compensation like 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
Stephens or BAAI may make this compensation available only to selected selling
agents. For example, Stephens sometimes sponsors promotions involving Banc of
America Investments, Inc., an affiliate of BAAI, and certain other selling
agents. Selected selling agents may also receive compensation for opening a
minimum number of accounts.
Stephens is responsible for paying the costs of this compensation, and may be
reimbursed for them under the 12b-1 plan or when a CDSC is deducted. Stephens
may cancel any compensation program at any time.
BAAI may pay amounts from its own assets to Stephens or other selling agents for
administrative or distribution related services they provide to shareholders.
64
<PAGE>
THE POWER OF COMPOUNDING
You can choose to reinvest your distributions in additional shares of the same
Fund and class.
Reinvesting your distributions buys you more shares of a Fund -- which lets you
take advantage of the potential for compound growth.
Putting the money you earn back into your investment means it, in turn, may earn
even more money. Over time, the power of compounding has the potential to
significantly increase the value of your investment.
Distributions and taxes
ABOUT DISTRIBUTIONS
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid on
COMMON STOCKS.
o A fund can also have CAPITAL GAINS if the value of its investments increases.
If a fund sells an investment at a gain, the gain is realized. If a fund
continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gains to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gains to their
shareholders so the Funds won't have to pay any income tax. When a Fund makes
this kind of a payment, it's split equally among all shares, and is called a
distribution.
All of the Funds distribute any net realized capital gains, including net
short-term capital gains, at least once a year.
The frequency of distributions of net investment income vary by Fund:
FREQUENCY OF INCOME
FUND DISTRIBUTIONS
Nations Marsico Focuses Equities Fund quarterly
Nations Marsico Growth & Income Fund quarterly
Nations International Value Fund annually
Nations International Equity Fund quarterly
Nations Emerging Markets Fund quarterly
A distribution is paid based on the number of shares you hold on the day before
the distribution is declared. Shares of the Funds are eligible to receive
distributions from the TRADE DATE of the purchase, as long as it's at least one
day before a distribution is declared, up to the day before the shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses. Each time a distribution is made, the
net asset value per share of the share class is reduced by the amount of the
distribution.
65
<PAGE>
This information is a summary of how federal income taxes may affect your
investment in the Funds. It is not intended as a substitute for careful tax
planning. You should consult with your own tax advisor about your situation,
including any foreign, state and local taxes that may apply.
For more information about taxes, please see the SAI.
We'll automatically reinvest distributions in additional shares of the same Fund
unless you tell us you want to receive your distributions in cash.
We generally pay cash distributions within five business days after the end of
the month, quarter or year in which the distribution was made. If you want to
receive your distributions you sell all of your shares, we'll pay any
distribution that applies to those shares in cash within five business days
after the sale was made.
If you buy shares of a Fund shortly before it makes a distribution, you will, in
effect, receive part of your purchase back in the distribution, which is subject
to tax. Similarly, if you buy shares of a Fund that holds securities with
unrealized capital gains, you will, in effect, receive part of your purchase
back if and when the Fund sells those securities, and realizes and distributes
the gain. This distribution is also subject to tax. Some Funds have built up, or
have the potential to build up, high levels of unrealized capital gains.
HOW TAXES AFFECT YOUR INVESTMENT
Distributions of net investment income, including net foreign currency gains and
any excess of net short-term capital gain over net long-term capital loss,
generally are taxable to you as ordinary income. Corporate shareholders may be
able to exclude a portion of these distributions from their taxable income.
Distributions of net capital gain (generally the excess of net long-term capital
gain over net short-term capital loss), generally are taxable to you as net
capital gains. Individual, trust and estate shareholders may be taxed on these
distributions at preferential rates.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one year
and distributed in January of the following year will be taxable as if they had
been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
66
<PAGE>
o WITHHOLDING TAX
We're required by federal law to withhold tax of 31% on any distributions and
sale proceeds paid to you (including amounts deemed to be paid for "in kind"
redemptions and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on your
account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding.
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also required by federal law to withhold tax on distributions paid to some
foreign shareholders.
o FOREIGN TAXES
Mutual funds that maintain most of their portfolio in foreign securities -- like
the international funds -- have special tax considerations. You'll generally be
required to:
o include in your gross income your proportional amount of foreign
taxes paid by the fund
o treat this amount as foreign taxes you paid directly
o either deduct this amount when calculating your income, or subject to certain
conditions and limitations, claim this amount as a foreign tax credit against
your federal income tax liability
In general, you can claim up to $300 ($600 if you're filing jointly) as a
foreign tax credit.
o TAXATION OF REDEMPTIONS AND EXCHANGES
Your redemptions (including redemptions "in kind") and exchanges of Fund shares
will usually result in a taxable capital gain or loss to you, depending on the
amount you receive for your shares (or are deemed to receive in the case of
exchanges)
67
<PAGE>
and the amount you paid (or are deemed to have paid) for them.
68
<PAGE>
Financial highlights
The financial highlights table is designed to help you understand how the Funds
have performed for the past five years. Certain information reflects financial
results for a single Fund share. The total investment return line indicates how
much an investment in the Fund would have earned, assuming all dividends and
distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. You'll find the
auditor's report and Nations Funds financial statements in the SAI. Please see
the back cover to find out how you can get a copy.
69
<PAGE>
Financial highlights
The financial highlights table is designed to help you understand how the Funds
have performed for the past five years. Certain information reflects financial
results for a single Fund share. The total investment return line indicates how
much an investment in the Fund would have earned, assuming all dividends and
distributions had been reinvested.
This information has been audited by PricewaterhouseCoopers LLP. You'll find the
auditor's report and Nations Funds financial statements in the SAI. Please see
the back cover to find out how you can get a copy.
[financial highlights tables for each Fund here]
56
<PAGE>
NATIONS MARSICO FOCUSED EQUITIES
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR A SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value at the beginning of the period $ 10.00
Net investment income/(loss) ( 0.01)
Net realized and unrealized capital gain on
investments 2.15
Net increase in net asset value from operations 2.14
DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, the end of the period $ 12.14
TOTAL RETURN++ 21.40%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $6,056
Ratio of operating expenses to average net assets 1.77%+(a)
Ratio of net investment income/(loss) to average
net assets ( 0.55)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.77%+(a)
</TABLE>
* Nations Marsico Focused Equities Fund Investor A
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
NATIONS MARSICO FOCUSED EQUITIES
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR B SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) ( 0.04)
Net realized and unrealized gain/(loss) on
investments 2.17
Net increase/(decrease) in net asset value from
operations 2.13
DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.13
TOTAL RETURN ++ 21.30%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $20,446
Ratio of operating expenses to average net assets 2.52%+(a)
Ratio of net investment income/(loss) to average
net assets ( 1.30)%+
Portfolio turnover rate 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.52%+(a)
</TABLE>
* Nations Marsico Focused Equities Fund Investor B
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
57
<PAGE>
NATIONS MARSICO FOCUSED EQUITIES
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR C SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) ( 0.04)
Net realized and unrealized gains on investments 2.17
Net increase in net asset value from operations 2.13
DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.13
TOTAL RETURN++ 21.30%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 469
Ratio of operating expenses to average net assets 2.52%+(a)
Ratio of net investment loss to average net assets ( 1.30)%+
Portfolio turnover rate 25%
Ratio of expenses to average net assets without
waivers and/or expense reimbursements 2.52%+(a)
</TABLE>
* Nations Marsico Focused Equities Fund Investor C
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charge.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
NATIONS MARSICO GROWTH & INCOME
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR A SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value at the beginning of the period $ 10.00
Net investment income 0.00 (b)
Net realized and unrealized gain on investments 2.02
Net increase in net asset value from operations 2.02
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of the period $ 12.02
TOTAL RETURN++ 20.20%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 1,141
Ratio of operating expenses to average net assets 1.34 +(a)
Ratio of net investment income/(loss) to average
net assets 0.13 +
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets
without fee waivers and/or expense
reimbursements 2.22 +(a)
</TABLE>
* Nations Marsico Growth & Income Fund Investor A
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
(b) Amount represents less than $0.01 per share.
58
<PAGE>
NATIONS MARSICO GROWTH & INCOME
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR B SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Net investment income ( 0.02)
Net realized and unrealized gain on investments 2.04
Net increase in net asset value from operations 2.02
DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.02
TOTAL RETURN++ 20.20%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $7,907
Ratio of operating expenses to average net assets 2.09%+(a)
Ratio of net investment income/loss to average net
assets ( 0.62)%+
Portfolio turnover rate 22%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.97%+(a)
</TABLE>
* Nations Marsico Growth & Income Fund Investor B
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
NATIONS MARSICO GROWTH & INCOME
FUND FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period ended
INVESTOR C SHARES 03/31/98*#
<S> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income ( 0.02)
Net realized and unrealized gain on investments 2.04
Net increase in net asset value from operations 2.02
DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from net realized capital gains 0.00
Total dividends and distributions 0.00
Net asset value, end of period $ 12.02
TOTAL RETURN++ 20.20%
==================================================== =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 518
Ratio of operating expenses to average net assets 2.09%+(a)
Ratio of net investment income/loss to average net
assets 0.62%+
Portfolio turnover rate 22%
Ratio of expenses to average net assets without
waivers and/or expense reimbursements 2.97%+(a)
</TABLE>
* Nations Marsico Growth & Income Fund Investor C
Shares commenced operations on December 31, 1997.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income has been
calculated using the monthly average share method.
(a) The effect of the fees reduced by credits
allowed by the custodian on the operating expense
ratio, with and without waivers and/or expense
reimbursements, was 0.01%.
59
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Value Fund
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor A Shares* 5/15/98 11/30/97 11/30/96**(a)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.13 $ 11.29 $ 10.00
- ---------------------------------------------------------------------------------------------------------
Net investment income 0.08 0.01 0.04
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on securities 2.52 1.91 1.31
- ---------------------------------------------------------------------------------------------------------
Total income from investment operations 2.60 1.92 1.35
- ---------------------------------------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income -- (0.01) (0.04)
- ---------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income -- (0.05) --
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gains on securities (0.29) (0.02) (0.02)
- ---------------------------------------------------------------------------------------------------------
Total dividends and distributions (0.29) (0.08) (0.06)
- ---------------------------------------------------------------------------------------------------------
Net change in net asset value 2.31 1.84 1.29
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.44 $ 13.13 $ 11.29
- ---------------------------------------------------------------------------------------------------------
Total return 20.22%++ 17.11% 13.54%++
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets supplemental data:
Net assets, end of period (000s) $5,128 $ 4,259 $ 115
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.81%+ 1.73% 0.00%+
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.21%+ 0.26% 1.83%+
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets*** 1.82%+ 1.93% 57.40%+
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets*** 1.20%+ 0.06% (55.57%)+
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover 88%++ 29% 50%++
</TABLE>
* Investor A Shares of Nations International Value Fund were formerly Retail
Shares of the Emerald International Equity Fund, a predecessor portfolio.
** For the period December 27, 1995 (commencement of operations) through
November 30, 1996.
*** During the period, certain fees were voluntarily reduced and/or reimbursed
reimbursements had not occurred, the ratios would have been as indicated.
(a) Effective August 19, 1996, Brandes became the Fund's Investment
Sub-Adviser.
+ Annualized.
++ Not annualized.
60
<PAGE>
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
INVESTOR A SHARES 03/31/98# 03/31/97#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 13.01 $ 13.39
Net investment income/(loss) 0.07 0.05
Net realized and unrealized gain/(loss) on
investments 1.94 0.11
Net increase/(decrease) in net asset value from
operations 2.01 0.16
DISTRIBUTIONS:
Dividends from net investment income ( 0.15) ( 0.09)
Distributions in excess of net investment income ( 0.04) ( 0.00)(b)
Distributions from net realized capital gains ( 0.16) ( 0.42)
Distributions in excess of net realized capital gains -- ( 0.03)
Total dividends and distributions ( 0.35) ( 0.54)
Net asset value, end of period $ 14.67 $ 13.01
TOTAL RETURN++ 15.77% 1.08%
======================================================= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $13,477 $9,443
Ratio of operating expenses to average net assets 1.39% 1.41%
Ratio of net investment income/(loss) to average
net assets 0.51% 0.37%
Portfolio turnover rate 64% 36%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.39% 1.41%
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
INVESTOR A SHARES 03/31/96(A)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.67 $ 12.00 $ 10.56 $ 10.38
Net investment income/(loss) 0.04 0.11 0.06 0.07
Net realized and unrealized gain/(loss) on
investments 1.78 ( 0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.82 ( 0.09) 1.50 0.28
DISTRIBUTIONS:
Dividends from net investment income ( 0.04) ( 0.02) ( 0.04) ( 0.08)
Distributions in excess of net investment income ( 0.04) -- -- --
Distributions from net realized capital gains ( 0.02) ( 0.12) ( 0.02) ( 0.02)
Distributions in excess of net realized capital gains -- ( 0.10) -- --
Total dividends and distributions ( 0.10) ( 0.24) ( 0.06) ( 0.10)
Net asset value, end of period $ 13.39 $ 11.67 $ 12.00 $ 10.56
TOTAL RETURN++ 15.66% ( 0.69)% 14.00% 2.91%
======================================================= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $7,643 $4,877 $3,219 $ 839
Ratio of operating expenses to average net assets 1.42%+ 1.28% 1.42% 1.55%+
Ratio of net investment income/(loss) to average
net assets 0.40%+ 0.92% 0.50% 0.78%+
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.43%+ 1.29% 1.43% 1.62%+
</TABLE>
* Nations International Equity Fund Investor A
Shares commenced operations on June 3, 1992.
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
(b) Amount represents less than $0.01 per share.
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
INVESTOR B SHARES 03/31/98# 03/31/97#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.83 $ 13.27
Net investment income/(loss) ( 0.03) ( 0.05)
Net realized and unrealized gain/(loss) on
investments 1.92 0.10
Net increase/(decrease) in net asset value from
operation 1.89 0.05
DISTRIBUTIONS:
Dividends from net investment income -- ( 0.04)
Distributions in excess of net investment income -- ( 0.00)**
Distributions from net realized capital gains ( 0.16) ( 0.42)
Distributions in excess of net realized capital gains -- ( 0.03)
Total dividends and distributions ( 0.16) ( 0.49)
Net asset value, end of period $ 14.56 $ 12.83
TOTAL RETURN++ 14.93% 0.28%
======================================================= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $34,119 $36,698
Ratio of operating expenses to average net assets 2.14% 2.16%
Ratio of net investment income/(loss) to average
net assets ( 0.24)% ( 0.38)%
Portfolio turnover rate 64% 36%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.14% 2.16%
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
INVESTOR B SHARES 03/31/96(A)# 05/31/95# 05/31/94*#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.56 $ 11.96 $ 10.51
Net investment income/(loss) ( 0.02) 0.05 ( 0.00)**
Net realized and unrealized gain/(loss) on
investments 1.78 ( 0.22) 1.51
Net increase/(decrease) in net asset value from
operation 1.76 ( 0.17) 1.51
DISTRIBUTIONS:
Dividends from net investment income -- ( 0.01) ( 0.04)
Distributions in excess of net investment income ( 0.03) -- --
Distributions from net realized capital gains ( 0.02) ( 0.12) ( 0.02)
Distributions in excess of net realized capital gains -- ( 0.10) --
Total dividends and distributions ( 0.05) ( 0.23) ( 0.06)
Net asset value, end of period $ 13.27 $ 11.56 $ 11.96
TOTAL RETURN++ 15.25% ( 1.30)% 14.32%
======================================================= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $40,426 $31,372 $17,349
Ratio of operating expenses to average net assets 1.99%+ 1.78% 1.92%+
Ratio of net investment income/(loss) to average
net assets ( 0.17)%+ 0.42% ( 0.00)%+##
Portfolio turnover rate 26% 92% 39%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.00%+ 1.79% 1.93%+
</TABLE>
* Nations International Equity Fund Investor B
Shares commenced operations on June 7, 1993.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
## Amount represents less than 0.01%.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
61
<PAGE>
NATIONS INTERNATIONAL EQUITY FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
INVESTOR C SHARES 03/31/98# 03/31/97#
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 12.74 $ 13.13
Net investment income/(loss) ( 0.01) 0.02
Net realized and unrealized gain/(loss) on
investments 1.89 0.10
Net increase/(decrease) in net asset value from
operations 1.88 0.12
DISTRIBUTIONS:
Dividends from net investment income ( 0.10) ( 0.06)
Distributions in excess of net investment income ( 0.02) ( 0.00)**
Distributions from net realized capital gains ( 0.16) ( 0.42)
Distributions in excess of net realized capital gains -- ( 0.03)
Total dividends and distributions ( 0.28) ( 0.51)
Net asset value, end of period $ 14.34 $ 12.74
TOTAL RETURN++ 15.05% 0.77%
======================================================= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 933 $ 988
Ratio of operating expenses to average net assets 1.97% 1.66%
Ratio of net investment income/(loss) to average
net assets ( 0.07)% 0.12%
Portfolio turnover rate 64% 36%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.97% 1.66%
<CAPTION>
PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
INVESTOR C SHARES 03/31/96(A)# 05/31/95# 05/31/94# 05/31/93*#
<S> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.45 $ 11.86 $ 10.49 $ 10.10
Net investment income/(loss) ( 0.03) 0.02 ( 0.03) 0.00**
Net realized and unrealized gain/(loss) on
investments 1.75 ( 0.21) 1.43 0.48
Net increase/(decrease) in net asset value from
operations 1.72 ( 0.19) 1.40 0.48
DISTRIBUTIONS:
Dividends from net investment income -- -- ( 0.01) ( 0.07)
Distributions in excess of net investment income ( 0.02) -- -- --
Distributions from net realized capital gains ( 0.02) ( 0.12) ( 0.02) ( 0.02)
Distributions in excess of net realized capital gains -- ( 0.10) -- --
Total dividends and distributions ( 0.04) ( 0.22) ( 0.03) ( 0.09)
Net asset value, end of period $ 13.13 $ 11.45 $ 11.86 $ 10.49
TOTAL RETURN++ 15.09% ( 1.56)% 13.21% 4.97%
======================================================= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 652 $ 495 $ 339 $ 200
Ratio of operating expenses to average net assets 2.09%+ 2.03% 2.17% 2.30%+
Ratio of net investment income/(loss) to average
net assets ( 0.27)%+ 0.17% ( 0.25)% 0.03%+
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 2.10%+ 2.04% 2.18% 2.32%+
</TABLE>
* Nations International Equity Fund Investor C
Shares commenced operations on June 17, 1992.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return
for the periods indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
(a) Fiscal year end changed to March 31. Prior to
this, the fiscal year end was May 31.
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
INVESTOR A SHARES 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.39 $ 10.32 $ 10.00
Net investment income/(loss) 0.01 ( 0.01) ( 0.05)
Net realized and unrealized gain/(loss) on
investments ( 0.75) 1.21 0.37
Net increase/(decrease) in net asset value from
operations ( 0.74) 1.20 0.32
DISTRIBUTIONS:
Dividends from net investment income ( 0.08) ( 0.02) --
Distributions in excess of net investment income -- ( 0.05) --
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions ( 0.08) ( 0.13) --
Net asset value, end of period $ 10.57 $ 11.39 $ 10.32
TOTAL RETURN++ ( 6.60)% 11.74% 3.20%
=================================================== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 652 $ 894 $ 477
Ratio of operating expenses to average net assets 1.82% 1.99% 2.38%+
Ratio of net investment income to average net
assets 0.11% ( 0.12%) ( 0.63)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor A Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
62
<PAGE>
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
INVESTOR B SHARES 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.31 $ 10.26 $ 10.00
Net investment income/(loss) ( 0.07) ( 0.09) ( 0.11)
Net realized and unrealized gain/(loss) on
investments ( 0.75) 1.20 0.37
Net increase/(decrease) in net asset value from
operations ( 0.82) 1.11 0.26
DISTRIBUTIONS:
Dividends from net investment income -- -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions 0.00 ( 0.06) --
Net asset value, end of period $ 10.49 $ 11.31 $ 10.26
TOTAL RETURN++ ( 7.25)% 10.88% 2.60%
===================================================== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's): $1,247 $1,499 $1,209
Ratio of operating expenses to average net assets 2.57% 2.74% 3.13%+
Ratio of net investment loss to average net assets ( 0.64)% ( 0.87)% ( 1.38)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor B Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
NATIONS EMERGING MARKETS FUND FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
INVESTOR C SHARES 03/31/98# 03/31/97# 03/31/96*#
<S> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of period $ 11.34 $ 10.27 $ 10.00
Net investment income/(loss) ( 0.05) ( 0.04) ( 0.10)
Net realized and unrealized gain/(loss) on
investments ( 0.75) 1.20 0.37
Net increase/(decrease) in net asset value from
operations ( 0.80) 1.16 0.27
DISTRIBUTIONS:
Dividends from net investment income ( 0.07) ( 0.01) --
Distributions in excess of net investment income -- ( 0.02) --
Distributions from net realized capital gains -- ( 0.06) --
Total dividends and distributions ( 0.07) ( 0.09) --
Net asset value, end of period $ 10.47 $ 11.34 $ 10.27
TOTAL RETURN++ ( 7.17)% 11.34% 2.70%
=================================================== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 293 $ 226 $ 23
Ratio of operating expenses to average net assets 2.40% 2.24% 3.02%+
Ratio of net investment income to average net
assets ( 0.47)% ( 0.37)% ( 1.27)%+
Portfolio turnover rate 63% 31% 17%
</TABLE>
* Nations Emerging Markets Fund Investor C Shares
commenced operations on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return
for the period indicated and does not reflect the
deduction of any applicable sales charges.
# Per share net investment income/(loss) has been
calculated using the monthly average share method.
63
<PAGE>
Terms used in this prospectus
ASSET-BACKED SECURITY - a debt security that gives you a share in a pool of
assets that is backed by loan paper, accounts receivable or other assets,
including mortgages, generally issued by banks, credit card companies or other
lenders. Some securities may be issued or guaranteed by the U.S. government or
by any of its agencies, authorities or instrumentalities. Asset-backed
securities make periodic payments, which may be interest or a combination of
interest and a portion of the principal of the underlying assets.
BARRA INDEX (1) - an index of approximately 340 common stocks from the S&P 500
that have low price-to-book ratios. These stocks generally tend to have higher
yields and less volatility than other stocks included in the S&P 500.
BARRA SMALLCAP INDEX (1) - an index of approximately 375 common stocks from the
S&P 600 that have low price-to-book ratios. These stocks generally tend to have
higher yields and less volatility than other stocks included in the S&P 600.
CAPITAL GAIN (CAPITAL LOSS) - the difference between the purchase price of a
security and its selling price. You REALIZE a capital gain (or loss) when you
sell a security for more (or less) than you paid for it.
COMMON STOCK - an equity security that represents part ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
CONVERTIBLE DEBT -- a debt security that can be exchanged for common stock (or
another type of security) on a specified basis and date.
CONVERTIBLE SECURITY -- a security that can be exchanged for common stock (or
another type of security) at a specified rate and date. Convertible securities
include convertible debt, rights and warrants.
DEBT SECURITY - when you invest in a debt security, you are lending your money
to a governmental body or company (the issuer) to help fund their operations or
major projects. The issuer
64
<PAGE>
pays interest at a specified rate on a specified date or dates, and repays the
principal when the security matures. Short-term debt securities include money
market instruments such as treasury bills. Long-term debt securities include
fixed income securities such as government and corporate bonds, and
mortgage-backed and asset-backed securities.
DEPOSITARY RECEIPTS - securities representing securities of companies based in
countries other than the U.S. Examples include ADRs, ADSs, GDRs and EDRs.
DIVIDEND YIELD - rate of return of dividends paid on a common or preferred
stock. It equals the amount of the annual dividend on a stock expressed as a
percentage of the stock's current market value.
EQUITY SECURITY - an investment that gives you part ownership in a company.
Equity securities (or "equities") include common and preferred stock, rights and
warrants.
FIXED INCOME SECURITY - an intermediate to long-term debt security that matures
in more than one year.
FOREIGN SECURITY - a debt or equity security issued by a foreign government or
corporation.
FUNDAMENTAL ANALYSIS - a method of securities analysis that tries to evaluate
the intrinsic, or "true," value of a particular stock. It includes a study of
the overall economy, industry conditions and the financial condition and
management of a company.
FUTURES CONTRACT - a contract to buy or sell an asset or an index of securities
at a specified price on a specified date. The price is set through a futures
exchange.
INVESTMENT GRADE - a debt security that has been given a medium to high credit
rating (BBB or higher) by a nationally recognized statistical rating
organization (NRSRO), based on the issuer's ability to pay interest and repay
principal on time. A debt security that has not been rated, but is believed to
be of comparable quality, may also be considered investment grade. Please see
the SAI for more information about credit ratings.
LIQUIDITY - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
65
<PAGE>
MONEY MARKET INSTRUMENT - a short-term debt security that matures in one year or
less. Money market instruments include U.S. Treasury obligations, U.S.
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, repurchase agreements and municipal securities.
MORTGAGE-BACKED SECURITY - a debt security that gives you a share in (or is
backed by) a pool of residential mortgages issued by the U.S. government or by
financial institutions. The underlying mortgages may be guaranteed by the U.S.
government or one of its agencies, authorities or instrumentalities.
Mortgage-backed securities make monthly payments, which are a combination of
interest and a portion of the principal of the underlying mortgages.
MSCI EAFE INDEX - Morgan Stanley Capital International Europe, Australasia and
Far East Index, an index of over 1,100 stocks from 21 developed markets in
Europe, Australia, New Zealand and Asia. The index reflects the relative size of
each market.
MUNICIPAL DEBT SECURITY - a debt security issued by state or local governments
or governmental authorities to pay for public projects and services. "General
obligations" are backed by the issuer's full taxing and revenue-raising powers.
"Revenue securities" depend on the income earned by a specific project or
authority, like road or bridge tolls, user fees for water or revenues from a
utility. Interest income is exempt from federal income taxes and is generally
exempt from state taxes if you live in the state that issued the security. If
you live in the municipality that issued the security, interest income may also
be exempt from local taxes.
NON-DIVERSIFIED - a fund that holds fewer securities than other kinds of funds.
This increases the risk that its value could go down significantly if one or
more of its investments performs poorly. Non-diversified funds tend to have
greater price swings than more diversified funds.
OVER-THE-COUNTER MARKET - a market where dealers trade securities through a
telephone or computer network rather than through a public stock exchange.
PREFERRED STOCK - an equity security that gives you an ownership
66
<PAGE>
right in a company, on a different basis than common stock. Preferred stock
generally pays a fixed annual dividend. If the company goes bankrupt, preferred
shareholders generally receive their share of the company's remaining assets
before common shareholders and after bondholders and other creditors.
PRICE-TO-EARNINGS RATIO (P/E RATIO) - the current price of a share divided by
its actual or estimated earnings per share. The P/E ratio is one measure of the
value of a company.
QUANTITATIVE ANALYSIS - an analysis of financial information about a company or
security to identify securities that have the potential for growth or are
otherwise suitable for a fund to buy.
REAL ESTATE INVESTMENT TRUST (REIT) - a managed portfolio of real estate
investments which may include office buildings, apartment complexes, hotels and
shopping malls, and real-estate-related loans or interests.
RIGHT - a temporary privilege allowing investors who already own a common stock
to buy additional shares directly from the company at a specified price or
formula.
S&P 500 (1) - Standard & Poor's 500 Composite Stock Price Index, an index of 500
common stocks chosen by S&P on a statistical basis.
S&P 600 (1) - Standard & Poor's SmallCap 600 Index, is designed to be a
benchmark of the performance of small capitalization stocks. It includes 600
U.S. stocks chosen by S&P based on market size, liquidity and industry group.
SENIOR SECURITY - a debt security that allows holders to receive their share of
a company's remaining assets in a bankruptcy before other bondholders,
creditors, and common and preferred shareholders.
TRADE DATE - the effective date of a purchase, sale or exchange transaction, or
other instructions sent to us. The trade date is determined by the day and time
we receive the order or instructions in a form that's acceptable to us.
U.S. GOVERNMENT OBLIGATION - a debt security issued or guaranteed by the U.S.
government or any of its agencies, authorities or instrumentalities. Direct
obligations are issued by the U.S.
67
<PAGE>
Treasury.
WARRANT - a certificate that gives you the right to buy common shares at a
specified price within a specified period of time.
(1) S&P and BARRA have not reviewed any stock included in the S&P 500, S&P 600,
BARRA Index or BARRA SmallCap Index for its investment merit. S&P and BARRA
determine and calculate their indexes independently of the Funds and are
not a sponsor or affiliate of the Funds. S&P and BARRA give no information
and make no statements about the suitability of investing in the Funds or
the ability of their indexes to track stock market performance. S&P and
BARRA make no guarantees about the indexes, any data included in them and
the suitability of the indexes or their data for any purpose. "Standard and
Poor's," "S&P 500"and "S&P 600"are trademarks of the McGraw-Hill Companies,
Inc.
68
<PAGE>
(logo)
Where to find more information
You'll find more information about the Equity Funds and International Funds in
the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports contain information about Fund investments
and performance, the financial statements and the auditor's reports. The annual
report also includes a discussion about the market conditions and investment
strategies that had a significant effect on each Fund's performance during the
period covered.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains additional information about the Funds and their policies. The
SAI is legally part of this prospectus (it's incorporated by reference). A copy
has been filed with the SEC.
You can obtain a free copy of these documents by contacting Nations Funds:
By telephone: 1-800-321-7854
By mail:
Nations Funds c/o Stephens Inc.
One Bank of America Plaza 33rd Floor
Charlotte, NC 28255
On the Internet: www.nationsbank.com/nationsfund
If you prefer, you can write or call the SEC's Public Reference Room and ask
them to mail you copies of these documents. They'll charge you a fee for this
service. You can also download them from the SEC's website or visit the Public
Reference Section and copy the documents while you're there.
Public Reference Section of the SEC
69
<PAGE>
Washington, DC 20549-6009
1-800-SEC-0330
http://www.sec.gov
SEC file numbers: [Nations Fund Trust, 811-04305]
70
<PAGE>
NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
Nations Emerging Markets Fund
Nations International Equity Fund
Nations International Value Fund
Nations Marsico Growth & Income Fund
Nations Marsico Focused Equities Fund
INVESTOR A, INVESTOR B, INVESTOR C, PRIMARY A AND PRIMARY B
, 1999
-------
This Statement of Additional Information (the "SAI") is not a prospectus. It is
intended to provide additional information regarding five series of Nations
Institutional Reserves (the "Trust") and should be read in conjunction with the
Trust's prospectuses dated ________, 1999 (each a "Prospectus" and collectively,
the "Prospectuses"). All terms used in this SAI that are defined in the
Prospectuses will have the same meanings assigned in the Prospectuses. Copies of
the Prospectuses may be obtained without charge by writing Nations Funds c/o the
Distributor, Stephens Inc., One Bank of America Plaza, 33rd Floor, Charlotte,
North Carolina 28255, or by calling Nations Funds at (800) 321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE TRUST................................................................................................1
INVESTMENT LIMITATIONS...................................................................................1
General..........................................................................................1
Fundamental Investment Limitations...............................................................2
Non-Fundamental Investment Limitations...........................................................2
ADDITIONAL INFORMATION ON FUND INVESTMENTS...............................................................3
General..........................................................................................3
Asset-Backed Securities..........................................................................4
Bank Instruments.................................................................................6
Borrowings.......................................................................................7
Commercial Instruments...........................................................................7
Combined Transactions............................................................................8
Convertible Securities...........................................................................8
Corporate Debt Securities........................................................................9
Custodial Receipts...............................................................................9
Currency Swaps..................................................................................10
Delayed Delivery Transactions...................................................................10
Dollar Roll Transactions .......................................................................10
Equity Swap Contracts...........................................................................11
Foreign Currency Transactions ..................................................................12
Futures, Options and Other Derivative
Instruments ..............................................................................13
Risk Factors Associated with Futures and Options Transactions...................................20
Guaranteed Investment Contracts.................................................................23
Insured Municipal Securities ...................................................................23
Interest Rate Transactions .....................................................................23
Lower Rated Debt Securities.....................................................................24
Municipal Securities ...........................................................................25
Options on Currencies...........................................................................29
Other Investment Companies......................................................................29
Real Estate Investment Trusts...................................................................29
Repurchase Agreements ..........................................................................30
Restricted Securities...........................................................................30
Reverse Repurchase Agreements ..................................................................31
Securities Lending..............................................................................31
Short Sales.....................................................................................32
Special Situations..............................................................................32
Stand-By Commitments ...........................................................................32
Stripped Securities.............................................................................33
Tax-Exempt Instruments..........................................................................34
U.S. and Foreign Bank Obligations...............................................................34
U.S. Government Obligations.....................................................................35
Use of Segregated and Other Special Accounts....................................................35
Variable Amount Master Demand Notes.............................................................36
Variable- and Floating-Rate Instruments ........................................................36
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Warrants........................................................................................37
When-Issued Purchases and Forward Commitments .................................................37
THE ADVISER.............................................................................................38
ADMINISTRATOR, CO-ADMINISTRATOR, AND SUB-ADMINISTRATOR..................................................45
COUNSEL.................................................................................................48
TRUSTEES AND OFFICERS...................................................................................49
Nations Funds Retirement Plan...................................................................55
Nations Funds Deferred Compensation Plan........................................................55
COMPENSATION TABLE......................................................................................56
TRUSTEE AND SHAREHOLDER LIABILITY.......................................................................57
PERFORMANCE INFORMATION.................................................................................58
General.........................................................................................58
Total Return Calculations.......................................................................58
Cumulative Total Return.........................................................................61
PURCHASE AND REDEMPTION OF SHARES.......................................................................63
Exchanges.......................................................................................64
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS............................................................65
Investor A Shares...............................................................................65
Investor B Shares...............................................................................66
Investor C Shares...............................................................................67
Primary B Shares................................................................................68
DETERMINATION OF NET ASSET VALUE........................................................................71
ADDITIONAL INFORMATION CONCERNING TAXES.................................................................73
General..........................................................................................73
Excise Tax.......................................................................................73
Private Letter Ruling............................................................................74
Taxation of Fund Investments.....................................................................74
Foreign Taxes....................................................................................75
Capital Gain Distributions.......................................................................76
Other Distributions..............................................................................76
Disposition of Fund Shares.......................................................................76
Federal Income Tax Rates.........................................................................77
Corporate Shareholders...........................................................................77
Foreign Shareholders.............................................................................77
New Regulations..................................................................................77
Backup Withholding...............................................................................78
Other Matters....................................................................................78
FUND TRANSACTIONS AND BROKERAGE.........................................................................78
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General Brokerage Policy.........................................................................78
Section 28(e) Standards..........................................................................80
CUSTODIAN AND TRANSFER AGENT............................................................................81
DISTRIBUTOR.............................................................................................82
DESCRIPTION OF SHARES...................................................................................83
5% SHAREHOLDERS.........................................................................................84
REPORTS EXPERTS AND FINANCIAL INFORMATION...............................................................94
SCHEDULE A - DESCRIPTION OF RATINGS....................................................................A-1
SCHEDULE B - ADDITIONAL INFORMATION CONCERNING OPTIONS
& FUTURES.......................................................................................B-1
SCHEDULE C - ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITES.......................................................................C-1
</TABLE>
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THE TRUST
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)1, is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Agreement and Declaration of Trust permits the Trust to offer separate
series of units of beneficial interest ("shares"). Each share of each series
represents an equal proportionate interest in that series. See "Description of
Shares." This Statement of Additional Information ("SAI") relates to the Nations
International Equity Fund, Nations International Value Fund, Nations Emerging
Markets Fund, Nations Marsico Growth & Income Fund and Nations Marsico Focused
Equities Fund (collectively referred to as the "Funds").
Nations International Equity Fund, Nations Marsico Focused Equities Fund and
Nations Marsico Growth & Income Fund are sometimes referred to herein as the
"Feeder Funds." The Feeder Funds seek to achieve their respective investment
objectives by investing substantially all of their assets in diversified
investment portfolios having the same investment objective as the master
portfolios ("Master Portfolios") of Nations Master Investment Trust ("NMIT"), an
open-end management investment company. Nations International Equity Fund
invests substantially all of its assets in Nations International Equity Master
Portfolio. Nations Marsico Focused Equities Fund invests substantially all of
its assets in Nations Marsico Focused Equities Master Portfolio. Nations Marsico
Growth & Income Fund invests substantially all of its assets in Nations Marsico
Growth & Income Master Portfolio.
Nations Institutional Reserves is a member of the Nations Funds family (`Nations
Funds Family"), a fund complex consisting of Nations Fund, Inc., Nations Fund
Trust, Nations Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal
Funds, Inc. and Nations Master Investment Trust. The Nations Fund Family is
currently undergoing a restructuring. As a result, certain that funds originally
were series of Nations Fund, Inc. ("NFI"), Nations Fund Trust ("NFT") and
Nations Fund Portfolios, Inc. ("NFP") have been moved into Nations Institutional
Reserves. The NFI funds are Nations International Equity Fund and Nations
International Value Fund. The NFT funds are Nations Marsico Focused Equities
Fund and Nations Marsico Growth & Income Fund. The NFP fund is Nations Emerging
Markets Fund. Certain information in this SAI will reference the other fund
companies of the Nations Fund Family.
INVESTMENT LIMITATIONS
GENERAL
Information concerning each Fund's investment objective is set forth in each of
the Prospectuses under the heading "About the Funds--Objectives." There can be
no assurance that the Funds will achieve their objectives. The principal
features of the Funds' investment programs and the primary risks associated with
those investment programs are discussed in the Prospectuses under the headings
"About the Funds--How Objectives Are Pursued" and "Appendix A--Portfolio
Securities." The values of the securities in which the Funds invest fluctuate
based upon interest rates, foreign currency rates, the financial stability of
the issuer and market factors.
- ----------
1 More specifically, Nations Institutional Reserves is the name under which The
Capitol Mutual Funds conducts business.
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FUNDAMENTAL INVESTMENT LIMITATIONS:
Significant investment restrictions applicable to the Funds' investment programs
are set forth in the Prospectuses under the heading "How Objectives Are Pursued
- - Investment Limitations." Additionally, as a matter of fundamental policy,
which may not be changed without a majority vote of a Fund's shareholders as
defined in Section 2(a)(42) of the 1940 Act, each Fund (except with respect to
certain Funds whose restrictions are enumerated separately) will not:
1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either (a)
in connection with the disposition of a portfolio security, or (b) in
connection with the purchase of securities directly from the issuer thereof
in accordance with its investment objective.
2. Purchase or sell real estate. However, a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
3. Purchase or sell commodities, except that a Fund may to the extent
consistent with its investment objective, invest in securities of companies
that purchase or sell commodities or which invest in such programs, and
purchase and sell options, forward contracts, futures contracts, and
options on futures contracts. This limitation does not apply to foreign
currency transactions including without limitation forward currency
contracts.
4. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the
same industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government, any state or
territory of the United States, or any of their agencies, instrumentalities
or political subdivisions, and (b) notwithstanding this limitation or any
other fundamental investment limitation, assets may be invested in the
securities of one or more diversified management investment companies to
the extent permitted by the 1940 Act and the rules and regulations
thereunder.
5. Make loans, except to the extent permitted by the 1940 Act.
6. Borrow money, issue senior securities or mortgage, pledge or hypothecate
its assets except to the extent permitted under the 1940 Act.
7. Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as a
result, more than 5% of its total assets will be invested in the securities
of such issuer or it would own more than 10% of the voting securities of
such issuer, except that (a) up to 25% of its total assets may be invested
without regard to these limitations and (b) a Fund's assets may be invested
in the securities of one or more diversified management investment
companies to the extent permitted by the 1940 Act.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS:
In addition, as a matter of non-fundamental investment policy, each Fund may
not:
1. Sell securities short, maintain a short position, or purchase securities
on margin, except for such short-term credits as are necessary for the
clearance of transactions. For this purpose, a deposit or
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<PAGE>
payment by a Fund for initial or maintenance margin in connection with
future contracts is not considered to be the purchase or sale of a security
on margin.
2. Purchase securities of other investment companies except as permitted by
the 1940 Act.
3. Write or sell puts, calls, straddles, spreads or combinations thereof
except that a Fund may acquire standby commitments and may enter into
futures contracts and options in accordance with their investment
objectives.
For purposes of the foregoing fundamental and non-fundamental limitations, any
limitation that involves a maximum percentage shall not be considered violated
unless an excess over the percentage occurs immediately after, and is caused by,
an acquisition or encumbrance of securities or assets of, or borrowings on
behalf of, the Funds.
Pursuant to a fundamental investment restriction (see "How Objectives are
Pursued" and "Investment Limitations" in the Trust's Prospectuses), the Trust
does not have authority to purchase any securities which would cause more than
25% of the value of any Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that, there is no limitation
with respect to investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The position of the staff of the
SEC is that the exclusion with respect to banks may only be applied to domestic
banks. For this purpose, the staff also takes the position that United States
branches of foreign banks and foreign branches of domestic banks may, if certain
conditions are met, be treated as "domestic banks." The Trust currently intends
to consider only obligations of "domestic banks" to be within the exclusion with
respect to banks. For this purpose, "domestic banks" will be construed by the
Trust to include: (a) United States branches of foreign banks, to the extent
they are subject to the same regulation as United States banks; and (b) foreign
branches of domestic banks with respect to which the domestic bank would be
unconditionally liable in the event that the foreign branch failed to pay on its
instruments for any reason.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
GENERAL
Information concerning each Fund's investment objective is set forth in the
respective Prospectuses of the Trust under the heading "About the
Funds--Objectives." There can be no assurance that the Funds will achieve their
objectives. The principal features of the Funds' investment programs and the
primary risks associated with those investment programs are discussed in the
Prospectuses under the headings "About the Funds--How Objectives Are Pursued"
and "Appendix A--Portfolio Securities." The values of the securities in which
the Funds invest fluctuate based upon interest rates, foreign currency rates,
the financial stability of the issuer and market factors.
Additional information on the particular types of securities in which certain
Funds may invest in is set forth below.
ASSET-BACKED SECURITIES
IN GENERAL. Asset-backed securities arise through the grouping by governmental,
government-related, and private organizations of loans, receivables, or other
assets originated by various lenders. Asset-backed securities consist of both
mortgage- and non-mortgage-backed securities. Interests in pools of these assets
3
<PAGE>
may differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Conversely, asset-backed securities provide periodic
payments which may consist of both interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent an ownership
interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests in pools
of residential mortgage loans originated by U.S. governmental or private lenders
and guaranteed, to the extent provided in such securities, by the U.S.
Government or one of its agencies, authorities or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may invest may
include those issued or guaranteed by GNMA, FNMA, or "Freddie Mac" (see Schedule
C). Such Certificates are mortgage-backed securities which represent a partial
ownership interest in a pool of mortgage loans issued by lenders such as
mortgage bankers, commercial banks and savings and loan associations. Such
mortgage loans may have fixed or adjustable rates of interest.
The average life of a mortgage-backed security is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
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<PAGE>
Mortgage-backed securities issued by private issuers, whether or not such
obligations are subject to guarantees by the private issuer, may entail greater
risk than obligations directly or indirectly guaranteed by the U.S. Government.
Collateralized mortgage obligations ("CMOs") are debt obligations collateralized
by mortgage loans or mortgage pass-through securities (collateral collectively
hereinafter referred to as "Mortgage Assets"). Multi-class pass-through
securities are interests in a trust composed of Mortgage Assets and all
references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of the premium if any has been paid.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semiannual basis.
The principal and interest payments on the Mortgage Assets may be allocated
among the various classes of CMOs in several ways. Typically, payments of
principal, including any prepayments, on the underlying mortgages are applied to
the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. A Fund will only invest in SMBS that are obligations backed by the
full faith and credit of the U.S. Government. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A Fund will only invest in SMBS
whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives some of the
interest and most of the principal from the mortgage assets, while the other
class receives most of the interest and the remainder of the principal. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities. The market value of any class which consists primarily or entirely
of principal payments generally is unusually volatile in response to changes in
interest rates.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments. The average life is likely to be substantially
less than the original maturity of the mortgage pools underlying the securities
as the result of mortgage prepayments, mortgage refinancings, or foreclosures.
The rate of mortgage prepayments, and hence the average life of the
certificates, will be a function of the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. Such prepayments are passed through to the registered
holder with the regular monthly payments of principal and interest and have the
effect of reducing future payments. Estimated average life will be determined by
the Adviser and used for the purpose of determining the average weighted
maturity and duration of the Funds.
NON-MORTGAGE ASSET-BACKED SECURITIES. Non-mortgage asset-backed securities
include interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables. Such securities are generally
issued as pass-through certificates, which represent undivided fractional
5
<PAGE>
ownership interests in the underlying pools of assets. Such securities also may
be debt instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt. Such securities also
may include instruments issued by certain trusts, partnerships or other special
purpose issuers, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the Asset-backed Securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the Asset-backed
Securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the Asset-backed Securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related Asset-backed Securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other Asset-backed Securities, credit card receivables
are unsecured obligations of the card holder.
While the market for Asset-backed Securities is becoming increasingly liquid,
the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
BANK INSTRUMENTS
Obligations of U.S. commercial banks include certificates of deposit, time
deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however, time deposits cannot be traded in the
secondary
6
<PAGE>
market. Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are used by corporations to
finance the shipment and storage of goods and furnish dollar exchanges.
Maturities are generally six months or less.
BORROWINGS
The Trust participates in an uncommitted line of credit provided by The Bank of
New York ("BNY") under a line of credit agreement (the "Agreement"). Advances
under the Agreement are taken primarily for temporary or emergency purposes,
including the meeting of redemption requests that otherwise might require the
untimely disposition of securities. Interest on borrowings is payable at the
federal funds rate plus .50% on an annualized basis. The Agreement requires,
among other things, that each participating Fund maintain a ratio of no less
than 4 to 1 net assets (not including funds borrowed pursuant to the Agreement)
to the aggregate amount of indebtedness pursuant to the Agreement. Specific
borrowings by a Fund under the Agreement over the last fiscal year, if any, can
by found in the Funds' Annual Reports for the year ended March 31, 1999.
COMMERCIAL INSTRUMENTS
Commercial Instruments consist of short-term U.S. dollar-denominated obligations
issued by domestic corporations or issued in the U.S. by foreign corporations
and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, the Funds 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 such Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Nations Cash Reserve Fund are met.
Variable-rate instruments acquired by a Fund will be rated at a level consistent
with such Fund's investment objective and policies of high quality as determined
by a major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. See also the discussion of variable- and
floating-rate instruments in this SAI.
Variable- and floating-rate instruments are unsecured instruments that permit
the indebtedness thereunder to vary. While there may be no active secondary
market with respect to a particular variable or floating rate instrument
purchased by a Fund, a Fund may, from time to time as specified in the
instrument, demand payment of the principal or may resell the instrument to a
third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the demand notice period specified in the instrument.
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<PAGE>
Certain Funds also may purchase short-term participation interests in loans
extended by banks to companies, provided that both such banks and such companies
meet the quality standards set forth above. In purchasing a loan participation
or assignment, the Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Many such loans are
secured and most impose restrictive covenants which must be met by the borrower
and which are generally more stringent than the covenants available in publicly
traded debt securities. However, interests in some loans may not be secured, and
the Fund will be exposed to a risk of loss if the borrower defaults. Loan
participations also may be purchased by the Fund when the borrowing company is
already in default. In purchasing a loan participation, the Fund may have less
protection under the federal securities laws than it has in purchasing
traditional types of securities. The Fund's ability to assert its rights against
the borrower will also depend on the particular terms of the loan agreement
among the parties.
COMBINED TRANSACTIONS
Certain Funds may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple forward foreign currency
exchange contracts and any combination of futures, options and forward foreign
currency exchange contracts ("component" transactions), instead of a single
transaction, as part of a single hedging strategy when, in the opinion of the
Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions. (See above for the
risk characteristics of certain transactions.)
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities, such as bonds, notes,
debentures, preferred stocks and other securities that may be converted into
common stock. All convertible securities purchased by the Fund will be rated in
the top two categories by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated, determined by the Adviser to be of
comparable quality. Investments in convertible securities can provide income
through interest and dividend payments, as well as, an opportunity for capital
appreciation by virtue of their conversion or exchange features.
The convertible securities in which a Fund may invest include fixed-income and
zero coupon debt securities, and preferred stock that may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities, generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. A unique
feature of convertible securities is that as the market price of the underlying
common stock declines, convertible securities tend to trade increasingly on a
yield basis, and so may not experience market value declines to the same extent
as the underlying common stock. When the market price of the underlying common
stock increases, the price of a convertible security tends to rise as a
reflection of the value of the underlying common stock, although typically not
as much as the price of the underlying common stock. While no securities
8
<PAGE>
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.
As debt securities, convertible securities are investments which provide for a
stream of income or, in the case of zero coupon securities, accretion of income
with generally higher yields than common stocks. Of course, like all debt
securities, there can be no assurance of income or principal payments because
the issuers of the convertible securities may default on their obligations.
Convertible securities generally offer lower yields than non-convertible
securities of similar quality because of their conversion exchange features.
Convertible securities generally are subordinated to other similar debt
securities but not to non-convertible securities of the same issuer. Convertible
bonds, as corporate debt obligations, are senior in right of payment to all
equity securities, and convertible preferred stock is senior to common stock, of
the same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes ("LYONs"). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation because
increases (or decreases) in the market value of such securities closely follow
the movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks because they usually are issued with short maturities
(15 years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
CORPORATE DEBT SECURITIES
Certain Funds may invest in corporate debt securities of domestic issuers of all
types and maturities, such as bonds, debentures, notes and commercial paper.
Corporate debt securities may involve equity features, such as conversion or
exchange rights or warrants for the acquisition of stock of the same or a
different issuer, participation based on revenue, sales or profit, or the
purchase of common stock or warrants in a unit transaction (where corporate debt
obligations and common stock are offered as a unit). Each Fund may also invest
in corporate debt securities of foreign issuers.
The corporate debt securities in which the Funds will invest will be rated
investment grade by at least one NRSRO (E.G., BBB or above by Standard & Poor's
Corporation ("S&P") or Baa or above by Moody's Investors Services, Inc.
("Moody's")). Commercial paper purchased by the Funds will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by such Funds if they are determined by the Adviser to be of
comparable quality under the direction of the Board of Trustees of the Trust. If
the rating of any corporate debt security held by a Fund falls below such
ratings or if the Adviser determines that an unrated corporate debt security is
no longer of comparable quality, then such security shall be disposed of in an
orderly manner as quickly as possible. A description of these ratings is
attached as Schedule A to this Statement of Additional Information.
CUSTODIAL RECEIPTS
Certain Funds may also acquire custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain U.S. Government
notes or bonds. Such notes and bonds are held in custody by a bank on behalf of
the owners. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" and "Certificates of
Accrual on
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Treasury Securities." Although custodial receipts are not considered U.S.
Government securities, they are indirectly issued or guaranteed as to principal
and interest by the U.S. Government, its agencies, authorities or
instrumentalities. Custodial receipts will be treated as illiquid securities.
CURRENCY SWAPS
Certain Funds also may enter into currency swaps for hedging purposes and to
seek to increase total return. In as much as swaps are entered into for good
faith hedging purposes or are offset by a segregated account as described below,
the Fund and the Adviser believe that swaps do not constitute senior securities
as defined in the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions. The net amount of the excess, if
any, of the Fund's obligations over its entitlement with respect to each
currency swap will be accrued on a daily basis and an amount of cash or liquid
high grade debt securities (i.e., securities rated in one of the top three
ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to be of
comparable credit quality) having an aggregate net asset value at least equal to
such accrued excess will be maintained in a segregated account by the Fund's
custodian. The Fund will not enter into any currency swap unless the credit
quality of the unsecured senior debt or the claims-paying ability of the other
party thereto is considered to be investment grade by the Adviser.
DELAYED DELIVERY TRANSACTIONS
In a delayed delivery transaction, the Fund relies on the other party to
complete the transaction. If the transaction is not completed, the Fund may miss
a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
DOLLAR ROLL TRANSACTIONS
Certain Funds may enter into "dollar roll" transactions, which consist of the
sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the security that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
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The entry into dollar rolls involves potential risks of loss that are different
from those related to the securities underlying the transactions. For example,
if the counterparty becomes insolvent, the Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before the Fund is able to purchase them. Similarly, the Fund
may be required to purchase securities in connection with a dollar roll at a
higher price than may otherwise be available on the open market. Since, as noted
above, the counterparty is required to deliver a similar but not identical
security to the Fund, the security that the Fund is required to buy under the
dollar roll may be worth less than an identical security. Finally, there can be
no assurance that the Fund's use of the cash that it receives from a dollar roll
will provide a return that exceeds borrowing costs.
EQUITY SWAP CONTRACTS
Certain Funds may from time to time enter into equity swap contracts. The
counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to pay a Fund the amount, if any, by which the notional amount of the
Equity Swap Contract would have increased in value had it been invested in the
stocks comprising the S&P 500 Index in proportion to the composition of the
Index, plus the dividends that would have been received on those stocks. A Fund
will agree to pay to the counterparty a floating rate of interest (typically the
London Inter Bank Offered Rate) on the notional amount of the Equity Swap
Contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return to
a Fund on any Equity Swap Contract should be the gain or loss on the notional
amount plus dividends on the stocks comprising the S&P 500 Index less the
interest paid by the Fund on the notional amount. A Fund will only enter into
Equity Swap Contracts on a net basis, I.E., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under the Equity Swap Contracts may be made at
the conclusion of the contract or periodically during its term.
If there is a default by the counterparty to an Equity Swap Contract, a Fund
will be limited to contractual remedies pursuant to the agreements related to
the transaction. There is no assurance that Equity Swap Contract counterparties
will be able to meet their obligations pursuant to Equity Swap Contracts or
that, in the event of default, a Fund will succeed in pursuing contractual
remedies. A Fund thus assumes the risk that it may be delayed in or prevented
from obtaining payments owed to it pursuant to Equity Swap Contracts. A Fund
will closely monitor the credit of Equity Swap Contract counterparties in order
to minimize this risk.
Certain Funds may from time to time enter into the opposite side of Equity Swap
Contracts (I.E., where a Fund is obligated to pay the increase (net of interest)
or receive the decrease (plus interest) on the contract to reduce the amount of
the Fund's equity market exposure consistent with the Fund's objective. These
positions are sometimes referred to as Reverse Equity Swap Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will not enter
into any Equity Swap Contract or Reverse Equity Swap Contract unless, at the
time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed 15% of the Fund's total
assets.
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The Adviser does not believe that a Fund's obligations under Equity Swap
Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
FOREIGN CURRENCY TRANSACTIONS
As described in the Prospectuses, certain Funds may invest in foreign currency
transactions. Foreign securities involve currency risks. The U.S. dollar value
of a foreign security tends to decrease when the value of the U.S. dollar rises
against the foreign currency in which the security is denominated, and tends to
increase when the value of the U.S. dollar falls against such currency. A Fund
may purchase or sell forward foreign currency exchange contracts ("forward
contracts") to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. dollar and foreign currencies. A Fund may also
purchase and sell foreign currency futures contracts and related options (see
"Purchase and Sale of Currency Futures Contracts and Related Options"). A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward foreign currency exchange contract generally has no deposit
requirement, and is traded at a net price without commission. A Fund will direct
its custodian to segregate high grade liquid assets in an amount at least equal
to its obligations under each forward foreign currency exchange contract.
Neither spot transactions nor forward foreign currency exchange contracts
eliminate fluctuations in the prices of a Fund's portfolio securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different foreign
currency for a fixed U.S. dollar amount where the Adviser believes that the U.S.
dollar value of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the currency in
which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund against
changes in foreign currency exchange rates between the trade and settlement
dates of specific securities transactions or changes in foreign currency
exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that
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might be realized should the value of the hedged currency increase. The precise
matching of the forward contract amount and the value of the securities involved
will not generally be possible because the future value of these securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
date it matures.
The Fund's custodian will segregate cash, U.S. Government securities or other
high-quality debt securities having a value equal to the aggregate amount of the
Fund's commitments under forward contracts entered into with respect to position
hedges and cross-hedges. If the value of the segregated securities declines,
additional cash or securities will be segregated on a daily basis so that the
value of the segregated securities will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to segregating all
or part of such securities, the Fund may purchase a call option permitting the
Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price or the Fund may
purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the
forward contract price.
The Funds are dollar-denominated mutual funds and therefore consideration is
given to hedging part or all of the portfolio back to U.S. dollars from
international currencies. All decisions to hedge are based upon an analysis of
the relative value of the U.S. dollar on an international purchasing power
parity basis (purchasing power parity is a method for determining the relative
purchasing power of different currencies by comparing the amount of each
currency required to purchase a typical bundle of goods and services to domestic
markets) and an estimation of short-term interest rate differentials (which
affect both the direction of currency movements and also the cost of hedging).
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
FUTURES CONTRACTS IN GENERAL. A futures contract is an agreement between two
parties for the future delivery of fixed income securities or equity securities
or for the payment or acceptance of a cash settlement in the case of futures
contracts on an index of fixed income or equity securities. A "sale" of a
futures contract means the contractual obligation to deliver the securities at a
specified price on a specified date, or to make the cash settlement called for
by the contract. Futures contracts have been designed by exchanges which have
been designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Presently, futures contracts are based on such
debt securities as long-term U.S. Treasury Bonds, Treasury Notes, GNMA modified
pass-through mortgage-backed securities, three-month U.S. Treasury Bills, bank
certificates of deposit, and on indices of municipal, corporate and government
bonds.
While futures contracts based on securities do provide for the delivery and
acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "margin." The
initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Daily thereafter, the futures contract is valued through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize
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differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a futures
contract may not have been issued when the contract was written.
Futures contracts on indices of securities are settled through the making and
acceptance of cash settlements based on changes in value of the underlying rate
or index between the time the contract is entered into and the time it is
liquidated.
FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As noted in
their respective Prospectuses, certain Funds may enter into transactions in
futures contracts for the purpose of hedging a relevant portion of their
portfolios. A Fund may enter into transactions in futures contracts that are
based on U.S. Government obligations, including any index of government
obligations that may be available for trading. Such transactions will be entered
into where movements in the value of the securities or index underlying a
futures contract can be expected to correlate closely with movements in the
value of securities held in a Fund. For example, a Fund may sell futures
contracts in anticipation of a general rise in the level of interest rates,
which would result in a decline in the value of its fixed income securities. If
the expected rise in interest rates occurs, the Fund may realize gains on its
futures position, which should offset all or part of the decline in value of
fixed income fund securities. A Fund could protect against such decline by
selling fixed income securities, but such a strategy would involve higher
transaction costs than the sale of futures contracts and, if interest rates
again declined, the Fund would be unable to take advantage of the resulting
market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gains on the futures
contracts by entering into offsetting transactions on the contract market on
which the initial purchase was effected. In a substantial majority of
transactions involving futures contracts on fixed income securities, a Fund will
purchase the securities upon termination of the long futures positions, but
under unusual market conditions, a long futures position may be terminated
without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts
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as an investment technique allows a Fund to act in anticipation of such an
interest rate decline without having to sell its portfolio securities. To the
extent a Fund enters into futures contracts for this purpose, the segregated
assets maintained by a Fund will consist of cash, cash equivalents or high
quality debt securities of the Fund in an amount equal to the difference between
the fluctuating market value of such futures contract and the aggregate value of
the initial deposit and variation margin payments made by the Fund with respect
to such futures contracts.
STOCK INDEX FUTURES CONTRACTS. As described in the Prospectuses, certain Funds
may sell stock index futures contracts in order to offset a decrease in market
value of its securities that might otherwise result from a market decline. A
Fund may do so either to hedge the value of its portfolio as a whole, or to
protect against declines, occurring prior to sales of securities, in the value
of securities to be sold. Conversely, a Fund may purchase stock index futures
contracts in order to protect against anticipated increases in the cost of
securities to be acquired.
In addition, a Fund may utilize stock index futures contracts in anticipation of
changes in the composition of its portfolio. For example, in the event that a
Fund expects to narrow the range of industry groups represented in its
portfolio, it may, prior to making purchases of the actual securities, establish
a long futures position based on a more restricted index, such as an index
comprised of securities of a particular industry group. As such securities are
acquired, a Fund's futures positions would be closed out. A Fund may also sell
futures contracts in connection with this strategy, in order to protect against
the possibility that the value of the securities to be sold as part of the
restructuring of its portfolio will decline prior to the time of sale.
OPTIONS ON FUTURES CONTRACTS. As described in the Prospectuses, an option on a
futures contract gives the purchaser (the "holder") the right, but not the
obligation, to purchase a position in the underlying futures contract (i.e., a
purchase of such futures contract) in the case of an option to purchase (a
"call" option), or a "short" position in the underlying futures contract (i.e.,
a sale of such futures contract) in the case of an option to sell (a "put"
option), at a fixed price (the "strike price") up to a stated expiration date.
The holder pays a non-refundable purchase price for the option, known as the
"premium." The maximum amount of risk the purchase of the option assumes is
equal to the premium plus related transaction costs, although this entire amount
may be lost. Upon exercise of the option by the holder, the exchange clearing
corporation establishes a corresponding long position in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
OPTIONS ON FUTURES CONTRACTS ON FIXED INCOME SECURITIES AND RELATED INDICES. As
described in the Prospectuses, certain Funds may purchase put options on futures
contracts in which such Funds are permitted to invest for the purpose of hedging
a relevant portion of their portfolios against an anticipated decline in the
values of portfolio securities resulting from increases in interest rates, and
may purchase call options on such futures contracts as a hedge against an
interest rate decline when they are not fully invested. A Fund would write
options on these futures contracts primarily for the purpose of terminating
existing positions.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS, OPTIONS ON STOCK INDICES AND OPTIONS
ON EQUITY SECURITIES. As described in the Prospectuses, certain Funds may
purchase put options on stock index futures contracts, stock indices or equity
securities for the purpose of hedging the relevant portion of their portfolio
securities against an anticipated market-wide decline or against declines in the
values of
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individual portfolio securities, and they may purchase call options on such
futures contracts as a hedge against a market advance when they are not fully
invested. A Fund would write options on such futures contracts primarily for the
purpose of terminating existing positions. In general, options on stock indices
will be employed in lieu of options on stock index futures contracts only where
they present an opportunity to hedge at lower cost. With respect to options on
equity securities, a Fund may, under certain circumstances, purchase a
combination of call options on such securities and U.S. Treasury bills. The
Adviser believes that such a combination may more closely parallel movements in
the value of the security underlying the call option than would the option
itself.
Further, while a Fund generally would not write options on individual portfolio
securities, it may do so under limited circumstances known as "targeted sales"
and "targeted buys," which involve the writing of call or put options in an
attempt to purchase or sell portfolio securities at specific desired prices. A
Fund would receive a fee, or a "premium," for the writing of the option. For
example, where the Fund seeks to sell portfolio securities at a "targeted"
price, it may write a call option at that price. In the event that the market
rises above the exercise price, it would receive its "targeted" price, upon the
exercise of the option, as well as the premium income. Also, where it seeks to
buy portfolio securities at a "targeted" price, it may write a put option at
that price for which it will receive the premium income. In the event that the
market declines below the exercise price, a Fund would pay its "targeted" price
upon the exercise of the option. In the event that the market does not move in
the direction or to the extent anticipated, however, the targeted sale or buy
might not be successful and a Fund could sustain a loss on the transaction that
may not be offset by the premium received. In addition, a Fund may be required
to forego the benefit of an intervening increase or decline in value of the
underlying security.
OPTIONS AND FUTURES STRATEGIES. As described in the Prospectuses, the Adviser
may seek to increase the current return of certain Funds by writing covered call
or put options. In addition, through the writing and purchase of options and the
purchase and sale of U.S. and certain foreign stock index futures contracts,
interest rate futures contracts, foreign currency futures contracts and related
options on such futures contracts, the Adviser may at times seek to hedge
against a decline in the value of securities included in the Fund or an increase
in the price of securities that it plans to purchase for the Fund. Expenses and
losses incurred as a result of such hedging strategies will reduce the Fund's
current return. A Fund's investment in foreign stock index futures contracts and
foreign interest rate futures contracts, and related options on such futures
contracts, are limited to only those contracts and related options that have
been approved by the CFTC for investment by U.S. investors. Additionally, with
respect to a Fund's investment in foreign options, unless such options are
specifically authorized for investment by order of the CFTC or meet the
definition of trade options as set forth in CFTC Rule 32.4, a Fund will not make
these investments.
The ability of a Fund to engage in the options and futures strategies described
below will depend on the availability of liquid markets in such instruments.
Markets in options and futures with respect to stock indices, foreign government
securities and foreign currencies are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures. Therefore, no assurance can be given that a Fund
will be able to utilize these instruments effectively for the purposes stated
below. Furthermore, a Fund's ability to engage in options and futures
transactions may be limited by tax considerations. Although a Fund will only
engage in options and futures transactions for limited purposes, these
activities will involve certain risks which are described below under "Risk
Factors Associated with Futures and Options Transactions." A Fund will not
engage in options and futures transactions for leveraging purposes.
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WRITING COVERED OPTIONS ON SECURITIES. Certain Funds may write covered call
options and covered put options on securities in which it is permitted to invest
from time to time as the Adviser determines is appropriate in seeking to attain
its objective. Call options written by a Fund give the holder the right to buy
the underlying securities from a Fund at a stated exercise price; put options
give the holder the right to sell the underlying security to the Fund at a
stated price.
A Fund may write only covered options, which means that, so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which increases
the Fund's return in the event the option expires unexercised or is closed out
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option and the volatility of the market
price of the underlying security. By writing a call option, a Fund limits its
opportunity to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a put option, the
Fund assumes the risk that it may be required to purchase the underlying
security for an exercise price higher than its then current market value,
resulting in a potential capital loss if the purchase price exceeds the market
value plus the amount of the premium received, unless the security subsequently
appreciates in value.
A Fund may terminate an option that it has written prior to its expiration by
entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. A Fund will realize a profit or
loss from such transaction if the cost of such transaction is less or more than
the premium received from the writing of the option. In the case of a put
option, any loss so incurred may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different put option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by a Fund.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. Such hedge protection is provided during the life of the put
option since a Fund, as holder of the put option, is able to sell the underlying
security at the put exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be profitable, the market
price of the underlying security must decline sufficiently below the exercise
price to cover the premium and transaction costs. By using put options in this
manner, a Fund will reduce any profit it might otherwise have realized in its
underlying security by the premium paid for the put option and by transaction
costs.
A Fund may also purchase call options to hedge against an increase in prices of
securities that it wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of the call option,
is able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. In order for a call option
to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, a Fund will reduce any profit it
might have realized had it bought the underlying security at the time it
purchased the call option by the premium paid for the call option and by
transaction costs.
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PURCHASE AND SALE OF OPTIONS AND FUTURES ON STOCK INDICES. A Fund may purchase
and sell options on non-U.S. stock indices and stock index futures as a hedge
against movements in the equity markets.
Options on stock indices are similar to options on specific securities except
that, rather than the right to take or make delivery of the specific security at
a specific price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
that stock index is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars multiplied by a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike options on specific securities, all settlements of
options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Fund might
purchase a call option on a stock index or a futures contract on that index as a
hedge against an increase in prices of particular equity securities it wants
ultimately to buy. If in fact the stock index does rise, the price of the
particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
PURCHASE AND SALE OF INTEREST RATE FUTURES. A Fund may purchase and sell
interest rate futures contracts on foreign government securities including, but
not limited to, debt securities of the governments and central banks of France,
Germany, Denmark and Japan for the purpose of hedging fixed income and interest
sensitive securities against the adverse effects of anticipated movements in
interest rates.
A Fund may sell interest rate futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market value of the fixed income securities held by a Fund will fall, thus
reducing the net asset value of the Fund. This interest rate risk can be reduced
without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative means of
hedging against rising interest rates. As rates increase, the value of a Fund's
short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of a Fund's
investments that are being hedged. While a Fund will incur commission expenses
in selling and closing out futures positions (which is done by taking an
opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
OPTIONS ON STOCK INDEX FUTURES CONTRACTS AND INTEREST RATE FUTURES CONTRACTS. A
Fund may purchase and write call and put options on non-U.S. stock index and
interest rate futures contracts. A Fund may use
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such options on futures contracts in connection with its hedging strategies in
lieu of purchasing and writing options directly on the underlying securities or
stock indices or purchasing and selling the underlying futures. For example, a
Fund may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures contracts, in anticipation of
a decline in general stock market prices or rise in interest rates,
respectively, or purchase call options or write put options on stock index or
interest rate futures, rather than purchasing such futures, to hedge against
possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. In order to
hedge its portfolio and to protect it against possible variations in foreign
exchange rates pending the settlement of securities transactions, a Fund may buy
or sell currency futures contracts and related options. If a fall in exchange
rates for a particular currency is anticipated, a Fund may sell a currency
futures contract or a call option thereon or purchase a put option on such
futures contract as a hedge. If it is anticipated that exchange rates will rise,
a Fund may purchase a currency futures contract or a call option thereon or sell
(write) a put option to protect against an increase in the price of securities
denominated in a particular currency a Fund intends to purchase. These futures
contracts and related options thereon will be used only as a hedge against
anticipated currency rate changes, and all options on currency futures written
by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as seller, to
deliver the amount of currency called for in the contract at a specified future
time for a special price. A currency futures contract purchase creates an
obligation by a Fund, as purchaser, to take delivery of an amount of currency at
a specified future time at a specified price. Although the terms of currency
futures contracts specify actual delivery or receipt, in most instances the
contracts are closed out before the settlement date without the making or taking
of delivery of the currency. Closing out of a currency futures contract is
effected by entering into an offsetting purchase or sale transaction. Unlike a
currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on currency
futures. This means that a Fund will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. A Fund will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by a Fund in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by a Fund falls below 100% of the market value of the call written by
the Fund, a Fund will so segregate an amount of cash, Treasury bills or other
high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or
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other high grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the put
options purchased or the currency futures by a Fund falls below 100% of the
market value of the put options written by the Fund, a Fund will so segregate an
amount of cash, Treasury bills or other high grade short-term obligations equal
in value to the difference.
If other methods of providing appropriate cover are developed, a Fund reserves
the right to employ them to the extent consistent with applicable regulatory and
exchange requirements. In connection with transactions in stock index options,
stock index futures, interest rate futures, foreign currency futures and related
options on such futures, a Fund will be required to deposit as "initial margin"
an amount of cash or short-term government securities equal to from 5% to 8% of
the contract amount. Thereafter, subsequent payments (referred to as "variation
margin") are made to and from the broker to reflect changes in the value of the
futures contract.
LIMITATIONS ON PURCHASE OF OPTIONS. The staff of the Securities and Exchange
Commission ("SEC") has taken the position that purchased over-the-counter
options and assets used to cover written over-the-counter options are illiquid
and, therefore, together with other illiquid securities, cannot exceed 15% of a
Fund's assets. The Adviser intends to limit a Fund's writing of over-the-counter
options in accordance with the following procedure. Each Fund intends to write
over-the-counter options only with primary U.S. Government securities dealers
recognized by the Federal Reserve Bank of New York. Also, the contracts which a
Fund has in place with such primary dealers will provide that the Fund has the
absolute right to repurchase an option it writes at any time at a price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula in the contract. Although the specific formula
may vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by a Fund for writing
the option, plus the amount, if any, of the option's intrinsic value (i.e., the
amount that the option is in-the-money). The formula also may include a factor
to account for the difference between the price of the security and the strike
price of the option if the option is written out-of-the-money. A Fund will treat
all or a part of the formula price as illiquid for purposes of the 15% test
imposed by the SEC staff.
RISK FACTORS ASSOCIATED WITH FUTURES AND OPTIONS TRANSACTIONS
The effective use of options and futures strategies depends on, among other
things, a Fund's ability to terminate options and futures positions at times
when its the Adviser deems it desirable to do so. Although a Fund will not enter
into an option or futures position unless the Adviser believes that a liquid
secondary market exists for such option or future, there is no assurance that a
Fund will be able to effect closing transactions at any particular time or at an
acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of this type
carry a high risk of loss. Moreover, a relatively small adverse market movement
with respect to these types of transactions may result not only in loss of the
original investment but also in unquantifiable further loss exceeding any margin
deposited.
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The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of the hedge. Such correlation, particularly
with respect to options on stock indices and stock index futures, is imperfect,
and such risk increases as the composition of a Fund diverges from the
composition of the relevant index. The successful use of these strategies also
depends on the ability of the Adviser to correctly forecast interest rate
movements, currency rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets forth
certain information regarding the potential risks associated with the Funds'
futures and options transactions.
RISK OF IMPERFECT CORRELATION. A Fund's ability effectively to hedge all or a
portion of its portfolio through transactions in futures, options on futures or
options on stock indices depends on the degree to which movements in the value
of the securities or index underlying such hedging instrument correlate with
movements in the value of the relevant portion of the Fund's securities. If the
values of the securities being hedged do not move in the same amount or
direction as the underlying security or index, the hedging strategy for a Fund
might not be successful and the Fund could sustain losses on its hedging
transactions which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the security or index
underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may be
distorted due to differences in the nature of the markets, such as differences
in margin requirements, the liquidity of such markets and the participation of
speculators in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of underlying
futures contract will not be fully reflected in the value of the option
purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in the
Adviser's judgment, there is expected to be a sufficient degree of correlation
between movements in the value of such instruments and changes in the value of
the relevant portion of the Fund's portfolio for the hedge to be effective.
There can be no assurance that the Adviser's judgment will be accurate.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. The ordinary spreads between prices
in the cash and futures markets, due to differences in the natures of those
markets, are subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin requirements. This
could require a Fund to post additional cash or cash equivalents as the value of
the position fluctuates.
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Further, rather than meeting additional variation margin requirements, investors
may close futures contracts through offsetting transactions which could distort
the normal relationship between the cash and futures markets. Second, the
liquidity of the futures or options market may be lacking. Prior to exercise or
expiration, a futures or option position may be terminated only by entering into
a closing purchase or sale transaction, which requires a secondary market on the
exchange on which the position was originally established. While a Fund will
establish a futures or option position only if there appears to be a liquid
secondary market therefor, there can be no assurance that such a market will
exist for any particular futures or option contract at any specific time. In
such event, it may not be possible to close out a position held by a Fund, which
could require the Fund to purchase or sell the instrument underlying the
position, make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on a Fund's ability effectively to hedge its securities,
or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option on a
futures contract may be adversely affected by "daily price fluctuation limits"
established by the exchanges, which limit the amount of fluctuation in the price
of a contract during a single trading day and prohibit trading beyond such
limits once they have been reached. The trading of futures and options contracts
also is subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of the brokerage
firm or clearing house or other disruptions of normal trading activity, which
could at times make it difficult or impossible to liquidate existing positions
or to recover excess variation margin payments.
RISK OF PREDICTING INTEREST RATE MOVEMENTS. Investments in futures contracts on
fixed income securities and related indices involve the risk that if the
Adviser's investment judgment concerning the general direction of interest rates
is incorrect, a Fund's overall performance may be poorer than if it had not
entered into any such contract. For example, if a Fund has been hedged against
the possibility of an increase in interest rates which would adversely affect
the price of bonds held in its portfolio and interest rates decrease instead,
the Fund will lose part or all of the benefit of the increased value of its
bonds which have been hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if a Fund has insufficient
cash, it may have to sell bonds from its portfolio to meet daily variation
margin requirements, possibly at a time when it may be disadvantageous to do so.
Such sale of bonds may be, but will not necessarily be, at increased prices
which reflect the rising market.
TRADING AND POSITION LIMITS. Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. The Adviser does not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Funds' investments.
REGULATIONS ON THE USE OF FUTURES AND OPTIONS CONTRACTS. Regulations of the CFTC
require that the Funds enter into transactions in futures contracts and options
thereon for hedging purposes only, in order to assure that they are not deemed
to be a "commodity pool" under such regulations. In particular, CFTC regulations
require that all short futures positions be entered into for the purpose of
hedging the value of investment securities held by a Fund, and that all long
futures positions either constitute bona fide hedging transactions, as defined
in such regulations, or have a total value not in excess of an amount determined
by reference to certain cash and securities positions maintained for the Fund,
and accrued profits on such positions. In addition, a Fund may not purchase or
sell such instruments if, immediately thereafter, the sum of the amount of
initial margin deposits on its existing futures positions and
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premiums paid for options on futures contracts would exceed 5% of the market
value of the Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash equivalents
or high quality debt securities will be segregated with the Fund's custodian so
that the amount so segregated, plus the initial deposit and variation margin
held in the account of its broker, will at all times equal the value of the
futures contract, thereby insuring that the use of such futures is unleveraged.
The Funds' ability to engage in the hedging transactions described herein may be
limited by the current federal income tax requirement that a Fund derive less
than 30% of its gross income from the sale or other disposition of stock or
securities held for less than three months. The Funds may also further limit
their ability to engage in such transactions in response to the policies and
concerns of various Federal and state regulatory agencies. Such policies may be
changed by vote of the Board of Trustees.
GUARANTEED INVESTMENT CONTRACTS
Guaranteed investment contracts, investment contracts or funding agreements
(each referred to as a "GIC") are investment instruments issued by highly rated
insurance companies. Pursuant to such contracts, a Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits to a Fund guaranteed interest. The
insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The purchase price paid for a GIC generally becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of purchase, meet
quality and credit standards established by the Adviser. Generally, GICs are not
assignable or transferable without the permission of the issuing insurance
companies, and an active secondary market in GICs does not currently exist.
Also, a Fund may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, at which point the GIC may be considered
to be an illiquid investment.
INSURED MUNICIPAL SECURITIES
Certain of the Municipal Securities held by the Funds may be insured at the time
of issuance as to the timely payment of principal and interest. The insurance
policies will usually be obtained by the issuer of the Municipal Securities at
the time of its original issuance. In the event that the issuer defaults with
respect to interest or principal payments, the insurer will be notified and will
be required to make payment to the bondholders. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will not
protect against market fluctuations caused by changes in interest rates and
other factors.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which certain Funds may enter are interest
rate swaps and the purchase or sale of related caps and floors. The Funds expect
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. A Fund intends to use these transactions as hedges and not as speculative
investments and will not sell interest rate caps or floors where it does not
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own securities or other instruments providing the income stream the Fund may be
obligated to pay. 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 with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
A Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from a NRSRO, or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each swap on a daily
basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
LOWER RATED DEBT SECURITIES
The yields on lower rated debt and comparable unrated fixed-income securities
generally are higher than the yields available on higher-rated securities.
However, investments in lower rated debt and comparable unrated securities
generally involve greater volatility of price and risk of loss of income and
principal, including the probability of default by or bankruptcy of the issuers
of such securities. Lower rated debt and comparable unrated securities (a) will
likely have some quality and protective characteristics that, in the judgment of
the rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of
securities held in a Fund's portfolio, with a commensurate effect on the value
of the Fund's shares. Therefore, an investment in the Fund should not be
considered as a complete investment program and may not be appropriate for all
investors.
The market prices of lower rated securities may fluctuate more than higher rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of
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issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the Adviser will
try to minimize the risks inherent in investing in lower rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as may buyers. Each Fund's policies regarding
lower rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
While the market values of lower rated debt and comparable unrated securities
tend to react less to fluctuations in interest rate levels than the market
values of higher-rated securities, the market values of certain lower rated debt
and comparable unrated securities also tend to be more sensitive to individual
corporate developments and changes in economic conditions than higher-rated
securities. In addition, lower rated debt securities and comparable unrated
securities generally present a higher degree of credit risk. Issuers of lower
rated debt and comparable unrated securities often are highly leveraged and may
not have more traditional methods of financing available to them so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater because lower rated debt and
comparable unrated securities generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
Fixed-income securities, including lower rated debt securities and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as a Fund.
If an issuer exercises these rights during periods of declining interest rates,
a Fund may have to replace the security with a lower yielding security, thus
resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated securities is
relatively new and has not weathered a major economic recession. The effect that
such a recession might have on such securities is not known. Any such recession,
however, could disrupt severely the market for such securities and adversely
affect the value of such securities. Any such economic downturn also could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon.
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
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financed. Private activity bonds held by a Fund are in most cases revenue
securities and are not payable from the unrestricted revenues of the issuer.
Consequently, the credit quality of private activity bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are normally
issued by special purpose public authorities. If the issuer of moral obligation
bonds is unable to meet its debt service obligations from current revenues, it
may draw on a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Municipal securities may include variable- or floating- rate instruments issued
by industrial development authorities and other governmental entities. While
there may not be an active secondary market with respect to a particular
instrument purchased by a Fund, a Fund may demand payment of the principal and
accrued interest on the instrument or may resell it to a third party as
specified in the instruments. The absence of an active secondary market,
however, could make it difficult for a Fund to dispose of the instrument if the
issuer defaulted on its payment obligation or during periods the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss.
Some of these instruments may be unrated, but unrated instruments purchased by a
Fund will be determined by the Adviser to be of comparable quality at the time
of purchase to instruments rated "high quality" by any major rating service.
Where necessary to ensure that an instrument is of comparable "high quality," a
Fund will require that an issuer's obligation to pay the principal of the note
may be backed by an unconditional bank letter or line of credit, guarantee, or
commitment to lend.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated instruments
that may be acquired by a Fund. Frequently, privately arranged loans have
variable interest rates and may be backed by a bank letter of credit. In other
cases, they may be unsecured or may be secured by assets not easily liquidated.
Moreover, such loans in most cases are not backed by the taxing authority of the
issuers and may have limited marketability or may be marketable only by virtue
of a provision requiring repayment following demand by the lender. Such loans
made by a Fund may have a demand provision permitting the Fund to require
payment within seven days. Participations in such loans, however, may not have
such a demand provision and may not be otherwise marketable.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets in lease
obligations that contain "non-appropriation" clauses where (1) the nature of the
leased equipment or property is such that its ownership or use is essential to a
governmental function of the municipality, (2) the lease payments will commence
amortization of principal at an early date resulting in an average life of seven
years or less for
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the lease obligation, (3) appropriate covenants will be obtained from the
municipal obligor prohibiting the substitution or purchase of similar equipment
if lease payments are not appropriated, (4) the lease obligor has maintained
good market acceptability in the past, (5) the investment is of a size that will
be attractive to institutional investors, and (6) the underlying leased
equipment has elements of probability and/or use that enhance its marketability
in the event foreclosure on the underlying equipment were ever required. The
Funds have not imposed any percentage limitations with respect to their
investment in lease obligations not subject to the "non-appropriation" risk. To
the extent municipal leases 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.
In evaluating the credit quality of a municipal lease obligation and determining
whether such lease obligation will be considered "liquid," the Adviser for each
Fund will consider: (1) whether the lease can be canceled; (2) what assurance
there is that the assets represented by the lease can be sold; (3) the strength
of the lessee's general credit (e.g., its debt, administrative, economic, and
financial characteristics); (4) the likelihood that the municipality will
discontinue appropriating funding for the leased property because the property
is no longer deemed essential to the operations of the municipality (e.g., the
potential for an "event of non-appropriation"); and (5) the legal recourse in
the event of failure to appropriate.
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 taxes.
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. The Funds will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, each may
invest more than 25% of its total assets in municipal securities the interest on
which is paid solely from revenues of similar projects if such investment is
deemed necessary or appropriate by the Adviser. To the extent that more than 25%
of a Fund's total assets are invested in Municipal Securities that are payable
from the revenues of similar projects, a Fund will be subject to the peculiar
risks presented by such projects to a greater extent than it would be if its
assets were not so concentrated.
There are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications, and the yields
on Municipal Securities depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
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conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of
nationally recognized statistical rating organizations represent their opinions
as to the quality of Municipal Securities. It should be emphasized, however,
that these ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate, and rating may have
different yields while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Fund, an issue of Municipal Securities may cease to be rated, or its rating
may be reduced below the minimum rating required for purchase by that Fund. The
Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation.
Opinions relating to the validity of Municipal Securities and to the exemption
of interest thereon from regular Federal income tax or state income tax are
rendered by counsel to the issuer or bond counsel at the time of issuance.
Neither the Funds nor the Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for opinions relating to the
validity of such issuance.
The payment of principal and interest on most securities purchased by a Fund
will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.
Certain types of Municipal Securities (private activity bonds) have been or are
issued to obtain funds to provide, among other things, privately operated
housing facilities, pollution control facilities, convention or trade show
facilities, mass transit, airport, port or parking facilities, and certain local
facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Such proposals, while pending or if enacted,
might materially and adversely affect the availability of Municipal Securities
for investment by one of these Funds and the liquidity and value of such
portfolios. In such an event, a Fund impacted would re-evaluate its investment
objective and policies and consider possible changes in its structure or
possible dissolution.
OPTIONS ON CURRENCIES
Certain Funds may purchase and sell options on currencies to hedge the value of
securities the Fund holds or intends to buy. Options on foreign currencies may
be traded on U.S. and foreign exchanges or over-the-counter.
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OTHER INVESTMENT COMPANIES
In seeking to attain their investment objectives, certain Funds may invest in
securities issued by other investment companies within the limits prescribed by
the 1940 Act. Each Fund currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund or by the Trust as a whole. 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 in connection with its own operations. The Adviser
has agreed to remit to the respective investing Fund fees payable to it under
its respective Investment Advisory Agreement with an affiliated money market
Fund to the extent such fees are based upon the investing Fund's assets invested
in shares of the affiliated money market fund.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a managed portfolio of real estate
investments which may include office buildings, apartment complexes, hotels and
shopping malls. An equity REIT holds equity positions in real estate, and it
seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both equity and mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code of 1986, as amended.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price (including principal and interest) on an agreed upon date
within a number of days (usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of the
underlying security.
The repurchase agreements entered into by the Funds will provide that the
underlying security at all times shall have a value at least equal to 102% of
the resale price stated in the agreement (the Adviser, the Custodian or an agent
of either such party monitors compliance with this requirement). Under all
repurchase agreements entered into by the Funds, the Funds' custodian or its
agent must take possession of the underlying collateral. However, if the seller
defaults, the Funds could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code
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provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Funds may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Funds are treated as an unsecured creditor and required to
return the underlying security to the seller's estate. Repurchase agreements are
a permissible investment for all Funds.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
absent an exemption from registration. Certain of the permitted investments of
the Funds may be restricted securities and the Adviser may invest in restricted
securities based on guidelines which are the responsibility of and are
periodically reviewed by the Board of Trustees. Under these guidelines, the
Adviser will consider the frequency of trades and quotes for the security, the
number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
Adviser intends to purchase securities that are exempt from registration under
Rule 144A and Section 4(2) promulgated under the 1933 Act. The Funds may
purchase liquid and illiquid restricted securities. Purchases of illiquid
restricted securities are subject to the Fund's investment limitations on the
purchase of illiquid securities.
REVERSE REPURCHASE AGREEMENTS
At the time a Fund enters into a reverse repurchase agreement, it may establish
a segregated account with its custodian bank in which it will maintain cash,
U.S. Government securities or other liquid high grade debt obligations equal in
value to its obligations in respect of reverse repurchase agreements. Reverse
repurchase agreements involve the risk that the market value of the securities
the Funds are obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
SECURITIES LENDING
To increase return on portfolio securities, all the Funds may lend their
portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding
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$1 billion and that is a member of the Federal Deposit Insurance Corporation, or
(ii) a foreign bank that is one of the 75 largest foreign commercial banks in
terms of total assets, or any combination thereof. Such loans will not be made
if, as a result, the aggregate of all outstanding loans of the Fund involved
exceeds one-third of the value of its total assets taken at fair market value. A
Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
government securities, including cash collateral received for securities loans.
However, a Fund will normally pay lending fees to such broker/dealers and
related expenses from the interest earned on investment collateral. Any loan may
be terminated by either party upon reasonable notice to the other party.
There may be risks of delay in receiving additional collateral or in recovering
the securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially. However, loans are made only to
borrowers deemed by the Adviser to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
Pursuant to the securities loan agreement a Fund is able to terminate the
securities loan upon notice of not more than five business days and thereby
secure the return to the Fund of securities identical to the transferred
securities upon termination of the loan.
SHORT SALES
As described in the Prospectuses, certain Funds may from time to time enter into
short sales transactions. A Fund will not make short sales of securities nor
maintain a short position unless at all times when a short position is open,
such Fund owns an equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by a Fund for the purpose of deferring recognition of gain or loss for
federal income tax purposes.
SPECIAL SITUATIONS
As described in the Prospectuses, certain Funds may invest in "special
situations." A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs and new
management or management policies. Although large and well known companies may
be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
STAND-BY COMMITMENTS
Certain Funds may acquire "stand-by commitments" with respect to Municipal
Securities held in their portfolios. Under a "stand-by commitment," a dealer
agrees to purchase from a Fund, at a Fund's option, specified Municipal
Securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying Municipal Securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
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The amount payable to a Fund upon its exercise of a stand-by commitment will
normally be (i) the Fund's acquisition cost of the Municipal Securities
(excluding any accrued interest which a Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period a Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period. Under normal market conditions, in determining net asset value a Fund
values the underlying Municipal Securities on an amortized cost basis.
Accordingly, the amount payable by a dealer upon exercise of a stand-by
commitment will normally be substantially the same as the portfolio value of the
underlying Municipal Securities.
A Fund's right to exercise stand-by commitments will be unconditional and
unqualified. A stand-by commitment will not be transferable by a Fund, although
the Fund could sell the underlying Municipal Securities to a third party at any
time. Until a Fund exercises its stand-by commitment, it owns the securities in
its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for a stand-by commitment either separately in cash or
by paying a higher price for the security being acquired which will be subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same security). When a Fund pays any consideration directly or indirectly
for a stand-by commitment, its cost will be reflected as unrealized depreciation
for the period during which the commitment is held by that Fund. The Funds will
not acquire a stand-by commitment unless immediately after the acquisition not
more than 5% of the Funds' total assets will be subject to a demand feature, or
in stand-by commitments, with the same institution.
Each Fund intends to enter into stand-by commitments only with banks and
broker/dealers which, in the Adviser's opinion, present minimal credit risks. In
evaluating the credit worthiness of the issuer of a stand-by commitment, the
Adviser will review periodically the issuer's assets, liabilities, contingent
claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. Stand-by commitments acquired by a Fund will be valued at zero in
determining net asset value. A Fund's reliance upon the credit of these dealers,
banks, and broker/dealers will be secured by the value of the underlying
Municipal Securities that are subject to the commitment. Thus, the risk of loss
to the Fund in connection with a "stand-by commitment" will not be qualitatively
different from the risk of loss faced by a person that is holding securities
pending settlement after having agreed to sell the securities in the ordinary
course of business.
STRIPPED SECURITIES
Certain Funds may purchase stripped securities issued or guaranteed by the U.S.
Government, where the principal and interest components are traded independently
under the Separate Trading of Registered Interest and Principal of Securities
program ("STRIPS"). Under STRIPS, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently.
In addition, the Fund may purchase stripped mortgage-backed securities ("SMBS")
issued by the U.S. Government (or a U.S. Government agency or instrumentality)
or by private issuers such as banks and other institutions. If the underlying
obligations experience greater than anticipated prepayments of principal, the
Fund may fail to fully recover its initial investment. The market value of the
class
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consisting entirely of principal payments can be extremely volatile in response
to changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be full
recovered. SMBS issued by the U.S. Government (or a U.S. Government agency or
instrumentality) may be considered liquid under guidelines established by the
Trust's Board of Trustees if they can be disposed of promptly in the ordinary
course of business at a value reasonably close to that used in the calculation
of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to maturity,
Federal income tax regulations require a Fund to recognize as interest income a
portion of the bond's discount each year. This income must then be distributed
to shareholders along with other income earned by the Fund. To the extent that
any shareholders in the Fund elect to receive their dividends in cash rather
than reinvest such dividends in additional Fund shares, cash to make these
distributions will have to be provided from the assets of the Fund or other
sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
TAX-EXEMPT INSTRUMENTS
Tax-exempt instruments which are permissible investments include floating-rate
notes. Investments in such floating-rate instruments will normally involve
industrial development or revenue bonds which provide that the rate of interest
is set as a specific percentage of a designated base rate (such as the prime
rate at a major commercial bank), and that the Fund can demand payment of the
obligation at all times or at stipulated dates on short notice (not to exceed 30
days) at par plus accrued interest. Such obligations are frequently secured by
letters of credit or other credit support arrangements provided by banks. The
quality of the underlying credit or of the bank, as the case may be, must, in
the Adviser's opinion be comparable to the long-term bond or commercial paper
ratings discussed in the relevant Prospectus. The Adviser will monitor the
earnings power, cash flow and liquidity ratios of the issuers of such
instruments and the ability of an issuer of a demand instrument to pay principal
and interest on demand. The Adviser may purchase other types of tax-exempt
instruments as long as they are of a quality equivalent to the long-term bond or
commercial paper ratings discussed in the relevant Prospectus, including
municipal lease obligations and participation interests in municipal securities
(such as industrial development bonds and municipal lease purchase payments).
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
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Each Fund limits its investments in foreign bank obligations (I.E., obligations
of foreign branches and subsidiaries of domestic banks, and domestic and foreign
branches and agencies of foreign banks) to obligations of banks which at the
time of investment are branches or subsidiaries of domestic banks which meet the
criteria in the preceding paragraphs or are branches or agencies of foreign
banks which (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches or agencies in the United
States; and (iv) in the opinion of the Adviser, pursuant to the established by
the Board of Trustees of the Trust, are of an investment quality comparable to
obligations of domestic banks which may be purchased by a Fund. These
obligations may be general obligations of the parent bank in addition to the
issuing branch or subsidiary, but the parent bank's obligations may be limited
by the terms of the specific obligation or by governmental regulation. Each Fund
also limits its investments in foreign bank obligations to banks, branches and
subsidiaries located in Western Europe (United Kingdom, France, Germany,
Belgium, The Netherlands, Italy and Switzerland), Scandinavia (Denmark and
Sweden), Australia, Japan, the Cayman Islands, the Bahamas and Canada. Each Fund
will limit its investment in securities of foreign banks to not more than 20% of
total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of the total assets of the Fund.
U.S. GOVERNMENT OBLIGATIONS
Each Fund may invest in U.S. Government obligations. Examples of the types of
U.S. Government obligations that may be held by the Funds include, in addition
to U.S. Treasury bonds, notes and bills, the obligations of the Federal Home
Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
U.S. Government obligations include principal and interest components of
securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts. These
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
authorities or instrumentalities.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Options, futures and forward foreign currency contracts that obligate a Fund to
provide cash, securities or currencies to complete such transactions will entail
that Fund to either segregate assets in an account with, or on the books of, the
Trust's custodian, or otherwise "covering" the transaction as described
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below. For example, a call option written by a Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or liquid assets sufficient
to meet the obligation by purchasing and delivering the securities if the call
is exercised. A call option written on an index will require that Fund to have
portfolio securities that correlate with the index. A put option written by a
Fund also will require that Fund to have available assets sufficient to purchase
the securities the Fund would be obligated to buy if the put is exercised.
A forward foreign currency contract that obligates a Fund to provide currencies
will require the Fund to hold currencies or liquid securities denominated in a
foreign currency which will equal the Fund's obligations. Such a contract
requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or currencies that
are the subject of the obligation, a Fund will hold cash, U.S. Government
securities and other high grade liquid debt obligations in a segregated account.
These assets cannot be transferred while the obligation is outstanding unless
replaced with other suitable assets. In the case of an index-based transaction,
a Fund could own securities substantially replicating the movement of the
particular index.
In the case of a futures contract, a Fund must deposit initial margin and
variation margin, as often as daily, if the position moves adversely, sufficient
to meet its obligation to purchase or provide securities or currencies, or to
pay the amount owed at the expiration of an index-based futures contract.
Similarly, options on futures contracts require a Fund to deposit margin to the
extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
VARIABLE AMOUNT MASTER DEMAND NOTES
Commercial paper which may be purchased by the Funds includes variable-amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market rates
of interest pursuant to direct arrangements between the Trust, as lender, and
the borrower. Such notes provide that the interest rate on the amount
outstanding varies on a periodic basis (E.G. daily, weekly or monthly) depending
upon a stated short-term interest rate index. Both the lender and the borrower
may have the right to reduce the amount of outstanding indebtedness at any time.
There is no secondary market for the notes. It is not generally contemplated
that such instruments will be traded. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity. A
variable-amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The Adviser will monitor on an
ongoing basis the earnings power, cash flow, and liquidity ratios of the issuers
of such instruments and will similarly monitor the ability of an issuer of a
demand instrument to pay principal and interest on demand. In addition,
variable-amount master demand notes must meet the demand feature ratings and
notice requirements set forth above.
35
<PAGE>
VARIABLE- AND FLOATING-RATE INSTRUMENTS
Certain Funds may purchase variable-rate and floating rate obligations as
described in the Prospectuses. If such instrument is not rated, the Adviser will
consider the earning power, cash flows, and other liquidity ratios of the
issuers and guarantors of such obligations and, if the obligation is subject to
a demand feature, will monitor their financial status to meet payment on demand.
In determining average weighted portfolio maturity, a variable-rate demand
instrument issued or guaranteed by the U.S. Government or an agency or
instrumentality thereof will be deemed to have a maturity equal to the period
remaining until the obligations next interest rate adjustment. Other
variable-rate obligations will be deemed to have a maturity equal to the longer
of the period remaining to the next interest rate adjustment or the time a Fund
can recover payment of principal as specified in the instrument.
The variable- and-floating rate demand instruments that the Funds may purchase
include participations in Municipal Securities purchased from and owned by
financial institutions, primarily banks. Participation interests provide a Fund
with a specified undivided interest (up to 100%) in the underlying obligation
and the right to demand payment of the unpaid principal balance plus accrued
interest on the participation interest from the institution upon a specified
number of days' notice, not to exceed 30 days. Each participation interest is
backed by an irrevocable letter of credit or guarantee of a bank that the
Adviser has determined meets the prescribed quality standards for the Funds. The
bank typically retains fees out of the interest paid on the obligation for
servicing the obligation, providing the letter of credit, and issuing the
repurchase commitment.
WARRANTS
Certain Funds are permitted to invest in warrants. Warrants are privileges
issued by corporations enabling the owner to subscribe to and purchase a
specified number of shares of the corporation at a specified price during a
specified period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. The purchase of warrants involves
the risk that the purchaser could lose the purchase value of the warrant if the
right to subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security's market price such as
when there is no movement in the level of the underlying security.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
A Fund may agree to purchase securities on a when-issued basis or enter into a
forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
36
<PAGE>
A Fund will make commitments to purchase securities on a when-issued basis or to
purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, a
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the net asset value of a Fund
starting on the date the Fund agrees to purchase the securities. The Fund does
not earn dividends on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
THE ADVISER
NationsBanc Advisors, Inc. ("NBAI") serves as investment adviser to the Funds,
except the Feeder Funds, pursuant to an investment advisory agreement (the
"Investment Advisory Agreement") dated January 1, 1996, as amended March 31,
1999. Gartmore Global Partners ("Gartmore") is the investment sub-adviser to
Nations Emerging Markets Fund. Brandes Investment Partners, L.P. ("Brandes") is
the investment sub-adviser to Nations International Value Fund.
Because the Feeder Funds invest all of their assets in corresponding Master
Portfolios, the Feeder Funds do not have a direct investment adviser. Rather,
NBAI serves as the investment adviser to the Master Portfolios. In addition,
Marsico Capital Management, LLC ("Marsico Capital") serves as the investment
sub-adviser to Nations Marsico Focused Equities Master Portfolio and Nations
Marsico Growth & Income Master Portfolio. Gartmore is the co-investment
sub-adviser to Nations International Equity Master Portfolio along with INVESCO
Global Asset Management (N.A.), Inc. ("INVESCO") and Putnam Investment
Management, Inc. ("Putnam"). The investment sub-advisory agreements among NBAI,
the Trust and each of Gartmore, Brandes, INVESCO, Putnam and Marsico Capital and
their respective funds shall be referred to herein as the "Sub-Advisory
Agreements." As used herein, "Adviser" shall mean NBAI, Gartmore, Brandes,
INVESCO, Putnam and/or Marsico Capital as the context may require.
NBAI also serves as the investment adviser to the portfolios of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Annuity Trust
and Nations LifeGoal Funds, Inc., each a registered investment company that is
part of the Nations Funds Family. In addition, NBAI serves as the investment
adviser to Hatteras Income Securities, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Nations
Balanced Target Maturity Fund, Inc., each a closed-end diversified management
investment company traded on the New York Stock Exchange.
37
<PAGE>
NBAI is a wholly owned subsidiary of NationsBank, N.A., which in turn is a
wholly owned banking subsidiary of Bank of America Corporation, a bank holding
company organized as a Delaware corporation.
Prior to April 10, 1996, the predecessor to Gartmore, Nations Gartmore
Investment Management ("Nations Gartmore"), provided sub-advisory services to
NBAI and Nations International Equity Fund. Nations Gartmore was a joint venture
structured as a general partnership between NB Partner Corp. and Gartmore U.S.
Limited, an indirectly wholly owned subsidiary of Gartmore Investment Management
plc ("Gartmore plc"). On April 10, 1996, National Westminster Bank plc and
affiliated parties (collectively, "NatWest") purchased 100% of the equity of
Gartmore plc from Compagnie de Suez, S.A. and affiliated entities (collectively,
"Compagnie de Suez") and other shareholders through a two-part transaction
involving (1) the direct purchase from Compagnie de Suez of its indirect
subsidiary Indosuez UK Asset Management Limited, which held 75% of the
outstanding voting shares of Gartmore plc; and (2) the acquisition of the
remaining portion of Gartmore plc's shares held by public shareholders through a
tender offer. This acquisition resulted in the change of control of Nations
Gartmore and the creation of a successor entity, Gartmore. On July 17, 1996, the
shareholders of Nations International Equity Fund approved the new sub-advisory
arrangement with Gartmore. There were no material changes to the personnel who
provided service to Nations International Equity Fund, and the change in
ownership did not result in a change in the level of service provided to Nations
International Equity Fund or the level of sub-advisory fees.
Brandes Investment Partners, Inc. owns a controlling interest in Brandes
Investment Partners, L.P. and serves as its General Partner. Charles Brandes is
the controlling shareholder of Brandes Investment Partners, Inc. The principal
offices of Brandes are located at 12750 High Bluff Drive, San Diego, CA 92130.
Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico Capital.
Prior to forming Marsico Capital in September, 1997, Mr. Marsico had 18 years of
experience as a securities analyst/portfolio manager. Marsico Capital is an
independent subsidiary of NationsBank and its affiliates. The principal offices
of Marsico Capital is 1200 17th Street, Suite 1300, Denver, CO 80202.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, Trustees,
employees or agents, NBAI shall not be subject to liability to the Trust or to
any shareholder of the Trust for any act or omission in the course of, or
connected with, rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
The Investment Advisory Agreement became effective with respect to a Fund when
approved by the Trustees of the Trust, and thereafter continues from year to
year, provided that such continuation of the Agreement is specifically approved
at least annually by (a) (i) the Trust's Board of Trustees or (ii) the vote of
"a majority of the outstanding voting securities" of a Fund (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
the Trust's Trustees who are not parties to such Agreement or "interested
persons" (as defined in the 1940 Act) of a party to such Agreement (other than
as Trustees of the Trust), by votes cast in person at a meeting specifically
called for such purpose.
The Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
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<PAGE>
The Sub-Advisory Agreements provide that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of an Adviser or any of their officers, Trustees,
employees or agents, the Adviser shall not be subject to liability to NBAI or to
the Trust for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
The Sub-Advisory Agreements became effective with respect to each Fund as of
their execution date and, unless sooner terminated, continue in full force and
effect for two years, and may be continued with respect to each Fund thereafter,
provided that the continuation of the Agreements are specifically approved at
least annually by (a) (i) the Trust's Board of Trustees or (ii) the vote of "a
majority of the outstanding voting securities" of a Fund (as defined in Section
2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of the
Trust's Trustees who are not parties to such Agreements or "interested persons"
(as defined in the 1940 Act) of a party to such Agreements (other than as
Trustees of the Trust), by votes cast in person at a meeting specifically called
for such purpose.
The Sub-Advisory Agreements will terminate automatically in the event of their
assignment, and are terminable with respect to a Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund), or by NBAI, Gartmore,
Brandes, INVESCO, Putnam or Marsico Capital on 60 days' written notice.
As previously mentioned, NIR is a member of the Nations Funds Family, which is
currently undergoing a restructuring. Certain funds which were originally series
of NFI, NFT and NFP have been moved into NIR. This has resulted in new
sub-advisory agreements between the Funds and their previous sub-advisors, as
follows:
The Sub-Advisory Agreement with Gartmore was initially approved by NIR's Board
of Trustees on March 31, 1999. The Sub-Advisory Agreement is effective for a two
year period and shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by
(a)(i) NIR's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of a Fund (as defined in Section 2(a)(42) of the
1940 Act), and (b) the affirmative vote of a majority of NIR's Trustees who are
not parties to such Agreement or "interested persons" (as defined in the 1940
Act) of a party to such Agreement (other than as Trustees of NIR), by votes cast
in person at a meeting specifically called for such purpose. The respective
Fund, NBAI or Gartmore may terminate the Sub-Advisory Agreement, on 60 days'
written notice without penalty. The Sub-Advisory Agreement terminates
automatically in the event of its "assignment," as defined in the 1940 Act. The
Sub-Advisory Agreement with Gartmore provides that Gartmore shall not be liable
to NIR or to its security holders for any act or omission by Gartmore or for any
loss sustained by NIR or by its security holders except in the case of
Gartmore's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of Gartmore, as the case may be. Previously, the
Sub-Advisory Agreement with Gartmore was approved by NFP's Board of Directors on
January 26, 1995 and by the initial shareholder on June 30, 1995. This prior
Sub-Advisory Agreement shall terminate on or about August 20, 1999.
The Sub-Advisory Agreement with Brandes was initially approved by NIR's Board of
Trustees on March 31, 1999. The Sub-Advisory Agreement is effective for a two
year period and shall thereafter continue from year to year, provided that such
continuation of the Agreement is specifically approved at least annually by
(a)(i) NIR's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of the International Value Fund (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
NIR's Trustees who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of a party to such Agreement (other than as Trustees of
NIR), by
39
<PAGE>
votes cast in person at a meeting specifically called for such purpose. The
Fund, NBAI or Brandes may terminate the Sub-Advisory Agreement, on 60 days'
written notice without penalty. The Sub-Advisory Agreement terminates
automatically in the event of its "assignment," as defined in the 1940 Act. The
Sub-Advisory Agreement with Brandes provides that Brandes shall not be liable to
the Trust or to its security holders for any act or omission by Brandes or for
any loss sustained by the Trust or by its security holders except in the case of
Brandes willful misfeasance, bad faith, gross negligence or reckless disregard
of duty on the part of Brandes, as the case may be. Previously, the Sub-Advisory
Agreement with Brandes was approved by NFI's Board of Directors on February 4,
1998. This prior Sub-Advisory Agreement shall terminate on or about August 20,
1999.
The Sub-Advisory Agreement with Marsico Capital was initially approved by NMIT's
Board of Trustees on March 31, 1999. The Sub-Advisory Agreement is effective for
a two year period and shall thereafter continue from year to year, provided that
such continuation of the Agreement is specifically approved at least annually by
(a)(i) NMIT's Board of Trustees or (ii) the vote of "a majority of the
outstanding voting securities" of a Master Portfolio (as defined in Section
2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of NMIT's
Trustees who are not parties to such Agreement or "interested persons" (as
defined in the 1940 Act) of a party to such Agreement (other than as Trustees of
NMIT), by votes cast in person at a meeting specifically called for such
purpose. The respective Master Portfolios, NBAI or Marsico Capital may terminate
the Sub-Advisory Agreement, on 60 days' written notice without penalty. The
Sub-Advisory Agreement terminates automatically in the event of its
"assignment," as defined in the 1940 Act. The Sub-Advisory Agreement with
Marsico Capital provides that Marsico Capital shall not be liable to NMIT or to
its security holders for any act or omission by Marsico Capital or for any loss
sustained by NMIT or by its security holders except in the case of Marsico
Capital's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty on the part of Marsico Capital, as the case may be. Previously, the
Sub-Advisory Agreement with Marsico Capital was approved by NFT's Board of
Trustees on December 7, 1997. This prior Sub-Advisory Agreement shall terminate
on or about August 20, 1999.
Gartmore, INVESCO, and Putnam provide investment sub-advisory services to
Nations International Equity Master Portfolio. Pursuant to Sub-Advisory
Agreements with NBAI, each of the three investment sub-advisers are responsible
for approximately one-third of the Nations International Equity Master
Portfolio's assets and each investment sub-adviser receives fees based on the
actual amount of assets managed by such investment sub-adviser. Each of the
Sub-Advisory Agreements with Gartmore, INVESCO, and Putnam were initially
approved by NMIT's Board of Trustees on March 31, 1999. Each Sub-Advisory
Agreement is effective for a two year period and shall thereafter continue from
year to year, provided that such continuation of the Agreement is specifically
approved at least annually by (a)(i) NMIT's Board of Trustees or (ii) the vote
of "a majority of the outstanding voting securities" of the International Equity
Master Portfolio (as defined in Section 2(a)(42) of the 1940 Act), and (b) the
affirmative vote of a majority of NMIT's Trustees who are not parties to such
Agreement or "interested persons" (as defined in the 1940 Act) of a party to
such Agreement (other than as Trustees of NMIT), by votes cast in person at a
meeting specifically called for such purpose. The respective Master Portfolios,
NBAI, Gartmore, INVESCO, or Putnam may terminate their respective Sub-Advisory
Agreement, on 60 days' written notice without penalty. Each Sub-Advisory
Agreement terminates automatically in the event of its "assignment," as defined
in the 1940 Act. The Sub-Advisory Agreement with each of Gartmore, INVESCO, and
Putnam provides that the sub-advisor shall not be liable to NMIT or to its
security holders for any act or omission by the sub-advisor or for any loss
sustained by NMIT or by its security holders except in the case of the
sub-advisor's willful misfeasance, bad faith, gross negligence or reckless
disregard of duty on the part of that sub-advisor, as the case may be.
Previously, the Sub-Advisory Agreements for Nations International Equity Fund
were approved by NFI's Board of Directors
40
<PAGE>
on December 2, 1998 and by the Fund's Shareholders on April 28, 1999. Prior to
those Sub-advisory arrangements going into effect, the Sub-Advisory Agreement
for Nations International Equity Fund was only with Gartmore, and was approved
by NFP's Board of Directors on January 26, 1995. The prior Sub-Advisory
Agreements shall terminate on or about August 20, 1999.
The Funds, in any advertisement or sales literature, may advertise the names,
experience and/or qualifications of the portfolio manager(s) of any Fund, or if
a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
Subject to reduction in accordance with the expense limitation provisions which
may be imposed by states in which the Funds' shares are qualified for sale, NBAI
received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to NBAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ADVISORY FEES
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
International Equity Fund [ ] [ ] [ ]
International Value Fund [ ] [ ] [ ]
Marsico Growth & Income Fund [ ] [ ] [ ]
Marsico Focused Equities Fund [ ] [ ] [ ]
Emerging Markets Fund [ ] [ ] [ ]
</TABLE>
Subject to reduction in accordance with the expense limitation provisions which
may be imposed by states in which the Funds' shares are qualified for sale, NBAI
received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to NBAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1998. The table below also states the advisory fees paid and waived by Barnett
Capital Advisers, Inc. with respect to the Emerald International Equity Fund
(predecessor to the Nations International Value Fund) for the fiscal period
December 1, 1997 through May 15, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ADVISORY FEES
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
International Equity Fund 9,260,334 0.00 0.00
International Value Fund 326,210 0.00 3,902.00
Marsico Growth & Income Fund 0.00 10,919 0.00
Marsico Focused Equities Fund 27,032 0.00 0.00
Emerging Markets Fund 988,113 0.00 0.00
</TABLE>
NBAI received fees from the Funds for its services as outlined in the following
chart, which states the net advisory fees paid to NBAI, the advisory fees waived
and expense reimbursements where applicable for the fiscal year ended March 31,
1997. The table below also states the advisory fees paid and waived by Barnett
Capital Advisers, Inc. with respect to the Emerald International Equity Fund
(predecessor to Nations International Value Fund) for the period ended December
1, 1996 through November 30, 1997.
41
<PAGE>
ADVISORY FEES
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
---- ------ ---------
Emerging Markets Fund 661,747.00 0.00 0.00
International Equity Fund 8,870,691.00 0.00 0.00
International Value Fund 395,837.00 0.00 4,304.00
The table below states the net sub-advisory fees paid to Gartmore for the fiscal
period indicated. No fees were waived or reimbursed by the Adviser during this
periods.
SUB-ADVISORY FEES PAID TO GARTMORE
Period Ending Period Ending
3/31/99 3/31/98
------- -------
International Equity Fund [ ] $9,260,333.98
Emerging Markets Fund [ ] 988,113.20
The table below states the net sub-advisory fees paid to Marsico for the fiscal
period indicated. No fees were waived or reimbursed by the Adviser during this
periods.
SUB-ADVISORY FEES PAID TO MARSICO
Period Ending Period Ending
3/31/99 3/31/98
------- -------
Marsico Focused Equities Fund [ ] $ 14,311
Marsico Growth & Income Fund [ ] 5,780
SUB-ADVISORY FEES PAID TO BRANDES
The table below states the net sub-advisory fees paid to Brandes for the fiscal
period indicated. No fees were waived or reimbursed by the Adviser during this
periods.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Period Ending Period Ending Period Ending Period Ending
3/31/99 5/15/98 11/30/97 11/30/96
International Value Fund [________] $177,516.52 $212,631.72 $19,395.00
</TABLE>
ADMINISTRATOR, CO-ADMINISTRATOR, AND SUB-ADMINISTRATOR
Stephens Inc. and NBAI (the "Co-Administrators") serve as co-administrators of
each Fund.
The Co-Administrators serve under a co-administration agreement
("Co-Administration Agreement"), which was approved by the Board of Trustees on
November 5-6, 1998. The Co-Administrators receive, as compensation for their
services rendered under the Co-Administration Agreement, administration fees,
computed daily and paid monthly, at the indicated annual rate of the following
Funds' average daily net assets: 0.22% of each international fund and 0.13% of
each equity Fund.
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<PAGE>
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among other
things, (i) maintain office facilities for the Funds, (ii) furnish statistical
and research data, data processing, clerical, and internal executive and
administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of Trustees meetings, (iv) coordinate the provision of
legal advice to the Trust with respect to regulatory matters, (v) coordinate the
preparation of reports to the Trust's shareholders and the SEC, including annual
and semi-annual reports, (vi) coordinating the provision of services to the
Trust by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii)
generally assist in all aspects of the Trust's operations. Stephens bears all
expenses incurred in connection with the performance of its services.
Also, pursuant to the Co-Administration Agreement, NBAI has agreed to, among
other things, (i) provide accounting and bookkeeping services for the Funds,
(ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Trust's reports to shareholders and the SEC, (iv)
prepare and file the Trust's federal and state tax returns, (v) perform monthly
compliance testing for the Trust, and (vi) prepare and furnish the Trust monthly
broker security transaction summaries and transaction listings and performance
information. NBAI bears all expenses incurred in connection with the performance
of its services.
The Co-Administration Agreement may be terminated by a vote of a majority of the
Board of Trustees, by Stephens or by NBAI on 60 days' written notice without
penalty. The Co-Administration Agreement is not assignable without the written
consent of the other party. Furthermore, the Co-Administration Agreement
provides that Stephens and NBAI shall not be liable to the Funds or to their
shareholders except in the case of Stephens' or NBAI's willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
BNY serves as sub-administrator for the Funds pursuant to a sub-administration
agreement. Pursuant to its terms, BNY assists Stephens and NBAI in supervising,
coordinating and monitoring various aspects of the Funds' administrative
operations. For providing such services, BNY is entitled to receive a monthly
fee from NBAI based on the following schedule of annual rates of the Funds'
average daily net assets.
DOMESTIC EQUITY
6 basis points per annum on the first $1 billion of
each portfolio's average net assets;
4 basis points on the next $500 million;
2 basis points on the next $500 million;
1 basis point on the excess.
INTERNATIONAL FUNDS
7 basis points per annum on the first $1 billion of
each portfolio's average net assets;
5 basis points on the next $500 million;
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<PAGE>
3 basis points on the next $500 million;
1 basis point on the excess.
[NEED Y-T-D INFORMATION REGARDING FEES PAID IN 1999 AND WHO RECEIVED FEES]
The table set forth below states the net Administration fees paid to Stephens
and waived for the fiscal year ended March 31, 1998, under the previous
administration arrangements. The administration arrangements have been revised
and the fees set forth below are not reflective of those changes. The new
arrangements appointing Stephens and NBAI as Co-Administrators and BNY as
Sub-Administrator were effective on or about January 14, 1999.
ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
International Equity Fund 405,314 0.00
International Value Fund N/A N/A
Marsico Growth & Income Fund 898 0.00
Marsico Focused Equities Fund 2,227 0.00
Emerging Markets Fund 21,266 0.00
The table below sets forth the total co-administration fees paid to First Data
Investor Services Group, Inc. ("First Data") and waived by First Data for the
fiscal year ended March 31, 1998. First Data was the co-administrator under the
previous administration arrangements.
CO-ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
International Equity Fund 623,612 0.00
International Value Fund N/A N/A
Marsico Growth & Income Fund 387 0.00
Marsico Focused Equities Fund 953 0.00
Emerging Markets Fund 67,559 0.00
The table set forth on the following page states the total net administration
fees paid and the total administration fees waived for the fiscal period ended
March 31, 1996.
44
<PAGE>
ADMINISTRATION FEES
FY 1996
Net Fees Fees
-------- ----
Paid Waived
---- ------
International Equity Fund 597,450.00 0.00
Emerging Markets Fund 17,121.00 0.00
The table sets forth below states the net Sub-Administration fees paid and
waived to NationsBank, or its affiliate NBAI, for the fiscal year ended March
31, 1998. For the period March 31, 1997 through November 30, 1997, fees were
paid to NationsBank. For the period December 1, 1997 through March 31, 1998,
fees were paid to NBAI.
SUB-ADMINISTRATION FEES
Net Fees Paid Fees Waived
------------- -----------
International Equity Fund 102,893 --
International Value Fund 0 --
Marsico Growth & Income Fund 128 --
Marsico Focused Equities Fund 318 --
Emerging Markets Fund 8,983 --
As discussed under the caption "Expenses," the Administrator will be required to
reduce its fee from the Companies, in direct proportion to the fees payable to
the Adviser and the Administrator by the Companies, if the expenses of the
Companies exceed the applicable expense limitation of any state in which the
Funds' shares are registered or qualified for sale.
COUNSEL
Morrison & Foerster LLP serves as legal counsel to the Trust and the Nations
Funds. Their address is 2000 Pennsylvania Avenue, N.W., Suite 5500, Washington,
D.C. 20006-1812.
TRUSTEES AND OFFICERS
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and the officers of the Trust and their principal occupations for the
last five years are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Edmund L. Benson, III, 62 Trustee Director, President and Treasurer,
45
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance);
728 East Main Street Trustee, Nations Institutional
Suite 400 Reserves, Nations Fund Trust,
Richmond, VA 23219 Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations
LifeGoal Funds, Inc.
James Ermer, 56 Trustee Retired; formerly, Senior Vice
13705 Hickory Nut Point President- Finance, CSX
Midlothian, VA 23112 Corporation
(transportation and
natural resources);
Director, National Mine
Service; Director,
Lawyers Title
Corporation; Trustee,
Nations Institutional
Reserves, Nations Fund
Trust, Nations Annuity
Trust and Nations Master
Investment Trust;
Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and
46 Nations LifeGoal Funds, Inc.
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
William H. Grigg, 66 Trustee Since June 1997, Chairman
Duke Power Co. Emeritus; June 1997 to
422 South Church Street April 1994, Chairman and
PB04G Chief Executive Officer;
Charlotte, NC 28242-0001 November 1991 to April
1994, Vice Chairman, Duke
Power Co.; from April
1988 to November 1991,
Executive Vice President
Customer Group, Duke
Power Co.; Director,
Hatteras Income
Securities, Inc., Nations
Government Income Term
Trust 2003, Inc., Nations
Government Income Term
Trust 2004, Inc., Nations
Balanced Target Maturity
Fund, Inc., Nations Fund,
Inc., Nations Fund
Portfolios, Inc. and
Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
Thomas F. Keller, 67 Trustee R.J. Reynolds Industries
Fuqua School of Business Professor of Business
Duke University Administration and Dean,
Durham, NC 27706 Fuqua School of Business,
Duke University;
Director, LADD Furniture,
Inc.; Director, Wendy's
and Mentor Funds;
Director, Hatteras Income
Securities, Inc., Nations
Government Income Term
Trust 2003, Inc., Nations
Government Income Term
Trust 2004, Inc., Nations
Balanced Target Maturity
Fund, Inc., Nations Fund,
Inc., Nations Fund
Portfolios, Inc. and
Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
47
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Carl E. Mundy, Jr., 64 Trustee Commandant, United States
9308 Ludgate Drive Marine Corps, from July
Alexandria, VA 23309 1991 to July 1995;
Commanding General,
Marine Forces Atlantic,
from June 1990 to June
1991; Director, Nations
Fund, Inc., Nations Fund
Portfolios, Inc. and
Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
James B. Sommers, 60* Trustee President, NationsBank
237 Cherokee Road Trust, from January 1992
Charlotte, NC 28207 to September 1996;
Executive Vice President,
NationsBank Corporation,
from January 1992 to May
1997; Principal,
Bainbridge & Associates;
Partner, Villa LLC;
Chairman, Central
Piedmont Community
College Foundation;
Trustee, Central Piedmont
Community College; Board
of Commissioners,
Charlotte/Mecklenberg
Hospital Authority;
Director, Nations Fund,
Inc., Nations Fund
Portfolios, Inc. and
Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
48
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
A. Max Walker, 77* President, Trustee and Financial consultant;
4580 Windsor Gate Court Chairman of the Board Formerly, President, A.
Atlanta, GA 30342 Max Walker, Inc.;
Director and Chairman of
the Board, Hatteras
Income Securities, Inc.,
Nations Government Income
Term Trust 2003, Inc.,
Nations Government Income
Term Trust 2004, Inc.,
Nations Balanced Target
Maturity Fund, Inc.,
Nations Fund, Inc.,
Nations Fund Portfolios,
Inc. and Nations LifeGoal
Funds, Inc.; President
and Chairman of the Board
of Trustees, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
Charles B. Walker, 60 Trustee Since 1989, Director,
Ethyl Corporation Executive Vice President,
P.O. Box 2189 Chief Financial Officer
330 South Fourth Street and Treasurer, Ethyl
Richmond, VA 23217 Corporation (chemicals,
plastics, and aluminum
manufacturing); since
1994, Vice Chairman,
Ethyl Corporation and
Vice Chairman, Chief
Financial Officer and
Treasurer, Albemarle
Corporation, Director,
Nations Fund, Inc.
Nations Fund Portfolios,
Inc. and Nations LifeGoal
Funds, Inc.; Trustee,
Nations Institutional
Reserves, Nations Fund
Trust, Nations Annuity
Trust and Nations Master
Investment Trust.
49
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Thomas S. Word, Jr., 61* Trustee Partner, McGuire Woods
McGuire, Woods, Battle Battle & Boothe (law);
& Boothe Director, Vaughan Bassett
One James Center Furniture Company,
Richmond, VA 23219 Director VB Williams
Furniture Company, Inc.;
Director, Nations Fund,
Inc., Nations Fund
Portfolios, Inc. and
Nations LifeGoal Funds,
Inc.; Trustee, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Annuity Trust and
Nations Master Investment
Trust.
Cornelius J. Pings, 69 Trustee President, Association of
480 S. Orange Grove Blvd. American Universities,
Pasadena, CA 91105 (February 1993 to #6 June
1998); Provost (from 1982
to January 1993) and
Senior Vice President for
Academic Affairs (from
1981 to January 1993),
University of Southern
California; Trustee,
Master Investment Trust,
Series I (since 1995);
former Trustee, Master
Investment Trust, Series
II (from 1995 to 1997);
Director, Farmers Group,
Inc. (insurance company)
(since 1991).
Richard H. Blank, Jr., 42 Secretary and Treasurer Since 1999, Senior Vice
Stephens Inc. President of Stephens;
111 Center Street 1994 to 1999, Vice
Suite 300 President of Mutual Fund
Little Rock, AR 72201 Services, Stephens Inc.;
1990 to 1994, Manager
Mutual Fund Services,
Stephens Inc.; 1983 to
1990, Associate in
Corporate Finance
Department, Stephens
Inc.; Secretary and
Treasurer, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Fund, Inc.,
Nations Fund Portfolios,
Inc., Nations Annuity
Trust, Nations Master
Investment Trust and
Nations LifeGoal Funds,
Inc.
50
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Michael W. Nolte, 38 Assistant Secretary Associate, Financial Services
Stephens Inc. Group of Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
Louise P. Newcomb, 46 Assistant Secretary and Corporate Syndicate
Stephens Inc. Assistant Treasurer Associate, Stephens Inc.
111 Center Street
Suite 300
Little Rock, AR 72201
James E. Banks, 43 Assistant Secretary Since 1993, Attorney,
Stephens Inc. Stephens Inc.; Associate
111 Center Street Corporate Counsel,
Suite 300 Federated Investors; from
Little Rock, AR 72201 1991 to 1993, Staff
Attorney, Securities and
Exchange Commission from
1988 to 1991
Richard H. Rose, 44 Assistant Treasurer Since 1994, Vice President,
First Data Investor Services Division Manager, First
Group, Inc. Data Investor Services
One Exchange Place Group, Inc., since 1988,
Boston, MA 02109 Senior Vice President,
The Boston Company
Advisors, Inc. Since
1998, Treasurer, Nations
Institutional Reserves,
Nations Fund Trust,
Nations Fund, Inc.,
Nations Fund Portfolios,
Inc., Nations Annuity
Trust, Nations Master
Investment Trust and
Nations LifeGoal Funds,
Inc.
51
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Steven Levy, 34 Assistant Treasurer Since 1997, Vice
First Data Investor Services President of Fund
Group Inc. Accounting, First Data
One Exchange Place Investor Services Group,
Boston, MA 02109 Inc.; prior to 1997,
Investment Operations
Manager, Franklin
Templeton Group and
Assistant Vice President
of Fund Accounting,
Scudder, Stevens and
Clark, Inc.
</TABLE>
- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.
MR. ROSE SERVES AS TREASURER TO CERTAIN OTHER INVESTMENT COMPANIES FOR WHICH
FIRST DATA OR ITS AFFILIATES SERVE AS SPONSOR, DISTRIBUTOR, ADMINISTRATOR AND/OR
INVESTMENT ADVISER.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund
Trust, Nations Annuity Trust and Nations Master Investment Trust, each a
registered investment company that is part of the Nations Funds Family. Richard
H. Blank, Jr., Richard H. Rose, Steven Levy, Michael W. Nolte, and James E.
Banks Jr., also are officers of Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations LifeGoal Funds, Inc., Nations Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust.
Each Trustee receives (i) an annual retainer of [$_________] ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of
$1,000 for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for each telephonic Board meeting attended. All
Trustees receive reimbursements for expenses related to their attendance at
meetings of the Board of Trustees. Officers receive no direct remuneration in
such capacity from the Trust. No person who is an officer, director, or employee
of Bank of America or its affiliates serves as an officer, Trustee, or employee
of the Trust. The Trustees and officers of Nations Funds own less than 1% of the
shares of the Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits each
access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by a Fund or (ii) was
being purchased or sold by a Fund. For purposes of the Code of Ethics, an access
person means (i) a Trustee or officer of the Trust, (ii) any employee of the
Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (I.E., the purchase/sale or sale/purchase of
52
<PAGE>
securities within any 60-day period). The above restrictions do not apply to
purchases or sales of certain types of securities, including mutual fund shares,
money market instruments and certain U.S. Government securities. To facilitate
enforcement, the Code of Ethics generally requires that the Trust's access
persons, other than its "disinterested" Trustees, submit reports to the Trust's
designated compliance person regarding transactions involving securities which
are eligible for purchase by a Fund.
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible Trustees (the
"Retirement Plan"), each Trustee may be entitled to certain benefits upon
retirement from the Board of Trustees. Pursuant to the Retirement Plan, the
normal retirement date is the date on which the eligible Trustee has attained
age 65 and has completed at least five years of continuous service with one or
more of the open-end investment companies (the "Funds") advised by the Adviser.
If a Trustee retires before reaching age 65, no benefits are payable. Each
eligible Trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate Trustee's fees
payable by the Funds during the calendar year in which the Trustee's retirement
occurs multiplied by the number of years of service (not in excess of ten years
of service) completed with respect to any of the Funds. Such benefit is payable
to each eligible Trustee in quarterly installments for a period of no more than
five years. If an eligible Trustee dies after attaining age 65, the Trustee's
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the Trustee
if he or she had not died. The Retirement Plan is unfunded. The benefits owed to
each Trustee are unsecured and subject to the general creditors of the Funds.
NATIONS FUNDS DEFERRED COMPENSATION PLAN
Under the terms of the Nations Funds Deferred Compensation Plan for Eligible
Trustees (the "Deferred Compensation Plan"), each Trustee may elect, on an
annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the Trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring Trustees to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds. Distributions from the deferring Trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five years beginning on the date the deferring Trustee's retirement
benefits commence under the Retirement Plan. The Board of Trustees, in its sole
discretion, may accelerate or extend such payments after a Trustee's termination
of service. If a deferring Trustee dies prior to the commencement of the
distribution of amounts in his or her deferral account, the balance of the
deferral account will be distributed to his or her designated beneficiary in a
lump sum as soon as practicable after the Trustee's death. If a deferring
Trustee dies after the commencement of such distribution, but prior to the
complete distribution of his or her deferral account, the balance of the amounts
credited to his or her deferral account will be distributed to his or her
designated beneficiary over the remaining period during which such amounts were
distributable to the Trustee. Amounts payable under the Deferred Compensation
Plan are not funded or secured in any way and deferring Trustees have the status
of unsecured creditors of the Funds from which they are deferring compensation.
53
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED ANNUAL
COMPENSATION BENEFITS ACCRUED BENEFITS UPON TOTAL COMPENSATION
NAME OF PERSON FROM AS PART OF FUND RETIREMENT FROM REGISTRANT
POSITION (1) REGISTRANT (2) EXPENSES PLAN & FUND COMPLEX (3) (4)
- ------------ --------------- -------- ----------------- ----------------------
Edmund L. Benson, III $9,000.00 $1,124.02 $30,000.00 $86,201.07 (50% Def'd)
Trustee
James Ermer $9,000.00 $1,124.02 $30,000.00 $59,000.00
Trustee
William H. Grigg $9,000.00 $1,124.02 $30,000.00 $117,533.68 (100% Def'd)
Trustee
Thomas F. Keller $9,000.00 $1,124.02 $30,000.00 $116,115.17 (100% Def'd)
Trustee
A. Max Walker $11,000.00 $1,124.02 $35,000.00 $89,000.00
Chairman of the Board
Charles B. Walker $9,000.00 $1,124.02 $30,000.00 $59,000.00
Trustee
Thomas S. Word $9,000.00 $1,124.02 $30,000.00 $109,255.23 (100% Def'd)
Trustee
James P. Sommers $6,750.00 $1,124.02 $30,000.00 $43,875.00
Trustee
Carl E. Mundy, Jr. $8,000.00 $1,124.02 $30,000.00 $54,000.00
Trustee --------- --------- ---------- ----------
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no
direct remuneration in such capacity from the Trust.
(2) For the current fiscal year and estimated future payments. Each Trustee
receives (i) an annual retainer of [$__________] ($3,000 for the Chairman of
the Board) plus $500 for each Fund of the Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., Nations Fund Trust, Nations Annuity Trust, Nations
Master Investment Trust and Nations LifeGoal Funds, Inc., plus (ii) a fee of
$1,000 for attendance at each in-person board meeting attended and $500 for
each telephonic board meeting attended. The Trust also reimburses expenses
incurred by the Trustees in attending such meetings.
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from ten
investment companies, including Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations Fund Trust, Nations Annuity Trust, Nations
54
<PAGE>
Master Investment Trust and Nations LifeGoal Funds, Inc., that are deemed to
be part of the Nations Fund "fund complex," as that term is defined under
Rule 14a-101 of the Securities Exchange Act of 1934, as amended. Messrs.
Benson, Ermer, C. Walker, Mundy and Word receive compensation from six
investment companies, including Nations Fund, Inc., Nations Fund Portfolios,
Inc., Nations Fund Trust, Nations Annuity Trust and Nations LifeGoal Funds,
Inc. deemed to be part of the Nations Funds complex.
(4) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III [$53,201.00]; William H. Grigg [$94,534.00]; Thomas F. Keller
[$93,115.00]; and Thomas S. Word [$102,255.00].
TRUSTEE AND SHAREHOLDER LIABILITY
NIR is a Massachusetts business trust. Under Massachusetts law, shareholders of
a business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, NIR's Declaration of Trust
provides that shareholders shall not be subject to any personal liability for
the acts or obligations of NIR, and that every note, bond, contract, order, or
other undertaking made by NIR shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The Declaration of
Trust also provides that NIR shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of NIR and shall
satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which NIR itself would be unable to meet its obligations.
The Declaration of Trust states further that no Trustee, officer, or agent of
NIR shall be personally liable for or on account of any contract, debt, tort,
claim, damage, judgment, or decree arising out of or connected with the
administration or preservation of the trust estate or the conduct of any
business of NIR; nor shall any Trustee be personally liable to any person for
any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or NIR shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a Trustee is
entitled to be indemnified against all liabilities and expenses reasonably
incurred by him in connection with the defense or disposition of any proceeding
in which he may be involved or with which he may be threatened by reason of his
being or having been a Trustee, and that the Trustees have the power, but not
the duty, to indemnify officers and employees of NIR unless any such person
would not be entitled to indemnification had he or she been a Trustee.
PERFORMANCE INFORMATION
GENERAL
Yield information and other performance information for the Funds may be
obtained by calling the Trust at (800) 321-7854.
55
<PAGE>
From time to time, a Fund's yield and total return may be quoted in
advertisements, shareholder reports, and other communications to shareholders.
Each Fund of the Trust also may quote information obtained from the Investment
Company Institute in its advertising materials and sales literature. In
addition, certain potential benefits of investing in world securities markets
may be discussed in promotional materials. Such benefits include, but are not
limited to: a) the expanded opportunities for investment in securities markets
outside the U.S.; b) the growth of securities markets outside the U.S. vis-a-vis
U.S. markets; c) the relative return associated with foreign securities markets
vis-a-vis U.S. markets; and d) a reduced risk of portfolio volatility resulting
from a diversified securities portfolio consisting of both U.S. and foreign
securities. Performance information is available by calling 1-800-321-7854.
TOTAL RETURN CALCULATIONS
Total return measures both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of, the
underlying investments in a Fund. The Funds' average annual and cumulative total
return figures are computed in accordance with the standardized methods
prescribed by the SEC. Average annual total return figures are computed by
determining the average annual compounded rates of return over the periods
indicated in the advertisement, sales literature or shareholders' report that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of
the period of a hypothetical $1,000
payment made at the beginning of such
period.
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
The following figures, for the period ended [FEBRUARY 28, 1999,] reflect the
deduction of sales charges, if any, that would have been deducted from a sale of
shares.
AVERAGE ANNUAL TOTAL RETURNS INCEPTION THROUGH INCEPTION THROUGH
[3/31/98] WITHOUT [3/31/98] INCLUDING
SALES CHARGES SALES CHARGES
Emerging Markets Fund
Primary A. Shares -6.39% 2.97%
Primary B Shares -6.80% 0.02%
Investor A Shares -6.60% 2.74%
Investor B Shares -11.89% 0.91%
Investor C Shares -7.17% 2.19%
56
<PAGE>
The performance figures of the Funds as described above will vary from time to
time depending upon market and economic conditions, the composition of their
portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
Each Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds may compare the
performance and yield of a class or series of shares to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
AVERAGE ANNUAL TOTAL RETURN
5 YEAR PERIOD ENDED
ONE YEAR 3/31/98 OR INCEPTION
PERIOD ENDED 3/31/98 THROUGH 3/31/98
International Equity Fund
Primary A 16.06% 10.68%
Primary B 15.09% 7.93%
Investor A 15.77% 10.41%
Investor B 14.93% 8.77%
Investor C 15.05% 9.69%
Each Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Funds may compare the
performance and yield of a class or series of shares to those of other mutual
funds with similar investment objectives and to other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example, the
performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund.
Each Fund may quote information obtained from the Investment Company Institute
in its advertising materials and sales literature.
IBBOTSON DATA. Ibbotson Associates of Chicago, Illinois, ("Ibbotson") provides
historical returns of the capital markets in the United States. The Funds may
compare the performance of their share classes or series to the long-term
performance of the U.S. capital markets in order to demonstrate general
long-term risk versus reward investment scenarios. Performance comparisons could
also include the value of a hypothetical investment in common stocks, long-term
bonds or treasuries.
57
<PAGE>
The capital markets tracked by Ibbotson are common stocks, small capitalization
stocks, long-term corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury Bills, and the U.S. rate of inflation. These capital
markets are based on the returns of several different indices. For common
stocks, the S&P is used. For small capitalization stocks, return is based on the
return achieved by Dimensional Fund Advisors ("DFA") Small Company Fund. This
fund is a market-value-weighted index of the ninth and tenth deciles of the
Exchange, plus stocks listed on the American Stock Exchange and over-the-counter
with the same or less capitalization as the upperbound of the Exchange ninth
docile. At year-end 1995, the DFA Small Company Fund contained approximately
2,663 stocks, with a weighted average market capitalization of $165.75 million.
The unweighted average market capitalization was $82.97 million, while the
median was $56.0 million.
Unlike an investment in a common stock mutual fund, an investment in bonds that
are held to maturity provides a fixed and stated rate of return. Bonds have a
senior priority in liquidation or bankruptcy to common stocks, and interest on
bonds is generally paid from assets of the corporation before any distributions
to common shareholders. Bonds rated in the two highest rating categories are
considered high quality and to present minimal risks of default. See Schedule A
for a more complete explanation of these ratings of corporate bonds. An
advantage of investing in government bonds is that, in many cases, they are
backed by the credit and taxing power of the United States government, and
therefore, such securities may present little or no risk of default. Although
government securities fluctuate in price, they are highly liquid and may be
purchased and sold with relatively small transaction costs (direct purchase of
Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the Salomon
Brothers Long-Term-High-Grade Corporate Bond Index and include nearly all "Aaa-"
and "Aa-" rated bonds. Returns on intermediate-term government bonds are based
on a one-bond portfolio constructed each year, containing a bond which is the
shortest noncallable bond available with a maturity not less than 5 years. This
bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
CUMULATIVE TOTAL RETURN
Cumulative total return is computed by finding the cumulative compounded rate of
return over the period indicated in the advertisement that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
58
<PAGE>
CTR = (ERV-P) 100
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment, and (b) all recurring fees, such as
advisory and administrative fees, charged as expenses to all shareholder
accounts.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C>
10 Year Period 10 Year Period
Ended 2/28/98 Ended 2/28/98
or Inception or Inception
FYE 5 Year Period 5 Year Period through through
FYE 2/28/98 2/28/98 Ended 2/28/98 Ended 2/28/98 2/28/98 2/28/98
Without Sales Including Without Sales Including Without Sales Including
Charges Sales Charges Charges Sales Charges Charges Sales Charges
------- ------------- ------- ------------- ------- -------------
International Equity Fund
Primary A Shares 16.06% n/a 66.09% n/a 67.27% n/a
Primary B Shares 15.09% n/a 14.33% n/a n/a n/a
Investor A Shares 15.77% n/a 64.07% n/a 57.84% n/a
Investor B Shares 14.93% 9.93% 49.87% 47.87% n/a n/a
Investor C Shares 15.05% n/a 58.83% n/a 56.09% n/a
</TABLE>
* Primary A Shares of the Trust do not carry a sales charge.
The Primary Shares and Investor A, B and C Shares of the [[ ] FUND] may also
quote their distribution rates, which express the historical amount of income
dividends paid to their shareholders during a one-month or a three-month period
as a percentage of the maximum offering price per share on the last day of such
period. The performance figures of the Funds as described above will vary from
time to time depending upon market and economic conditions, the composition of
their portfolios and operating expenses. These factors should be considered when
comparing the performance figures of the Funds with those of other investment
companies and investment vehicles.
Each Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition,
59
<PAGE>
the Funds also may compare the performance and yield of a class or series of
shares to those of other mutual funds with similar investment objectives and to
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the performance and yield of a class of shares in a Fund may be
compared to data prepared by Lipper Analytical Services, Inc. Performance and
yield data as reported in national financial publications such as Money
Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or
in publications of a local or regional nature, also may be used in comparing the
performance of a class of shares in a Fund.
[IN ADDITION, THE PERFORMANCE AND YIELD OF A CLASS OF SHARES IN NATIONS
INTERNATIONAL EQUITY MASTER PORTFOLIO MAY BE COMPARED TO THE STANDARD & POOR'S
500 STOCK INDEX, AN UNMANAGED INDEX OF A GROUP OF COMMON STOCKS, THE CONSUMER
PRICE INDEX, OR THE DOW JONES INDUSTRIAL AVERAGE, A RECOGNIZED UNMANAGED INDEX
OF COMMON STOCKS OF 30 INDUSTRIAL COMPANIES LISTED ON THE NEW YORK STOCK
EXCHANGE. THE PERFORMANCE AND YIELD OF A CLASS OF SHARES IN THE NATIONS
INTERNATIONAL EQUITY FUND MAY BE COMPARED TO THE EUROPE, FAR EAST AND AUSTRALIA
INDEX, A RECOGNIZED UNMANAGED INDEX OF INTERNATIONAL STOCKS. ANY GIVEN
PERFORMANCE COMPARISON SHOULD NOT BE CONSIDERED REPRESENTATIVE OF A FUND'S
PERFORMANCE FOR ANY FUTURE PERIOD.]
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of the Funds may be effected on any Business Day.
Purchase orders for a Fund which are received by the Distributor, the Transfer
Agent or their respective agents before the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on any Business Day are priced
according to the net asset value determined on that day. In the event that the
Exchange closes early, purchase orders received prior to the closing will be
priced as of the time the Exchange closes and purchase orders received after the
Exchange closes will be deemed received on the next Business Day and priced
according to the net asset value determined on the next Business Day. Purchase
orders are not executed until 4:00 p.m., Eastern time, on the Business Day on
which immediately available funds in payment of the purchase price are received
by the Fund's Custodian. Such payment must be received no later than 4:00 p.m.,
Eastern time, by the third Business Day following the receipt of the order, as
determined above.
Redemption orders for Funds which are received by Stephens, the Transfer Agent
or their respective agents before the close of regular trading on the Exchange
on any Business Day are priced according to the net asset value next determined
after acceptance of the order, less any applicable Contingent Deferred Sales
Charge ("CDSC"). In the event that the Exchange closes early, redemption orders
received prior to closing will be priced as of the time the Exchange closes and
redemption orders received after the Exchange closes will be deemed received on
the next Business Day and priced according to the net asset value determined on
the next Business Day.
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. Redemption proceeds are normally
remitted in federal funds wired to the redeeming Agent or investor within three
Business Days after receipt of the order by Stephens, the Transfer Agent or
their respective agents. Redemption orders are effected at the net asset value
per share next determined after receipt of the order by the Fund, Stephens, the
Transfer Agent or their respective agents, as the case may be, less any
applicable CDSC. The Agents are responsible for transmitting redemption orders
to Stephens, the Transfer Agent or their respective agents and for crediting
their Customer's account with the redemption proceeds on a timely basis.
Redemption proceeds for shares purchased by
60
<PAGE>
check may not be remitted until at least 15 days after the date of purchase to
ensure that the check has cleared; a certified check, however, is deemed to be
cleared immediately. No charge for wiring redemption payments is imposed by
Nations Funds. Except for any CDSC which may be applicable, there is no
redemption charge.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange is restricted, as determined by
applicable rules and regulations of the SEC, (b) the New York Stock Exchange is
closed for other than customary weekend and holiday closings, (c) the SEC has by
order permitted such suspension, or (d) an emergency as determined by the SEC
exists making disposal of portfolio securities or the valuation of the net
assets of a Fund of the Trust not reasonably practicable. The Exchange is closed
for business on New Years Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Veterans Day,
Thanksgiving Day and Christmas Day. The Federal Reserve Bank observes the
following holidays: New Years Day, Martin Luther King Jr's Birthday, Presidents
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day and Christmas Day.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of each Fund next
determined after receipt by the Distributor of the redemption order.
The Trust reserves the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the Trust and/or
shareholder(s) to accept such purchase order. The Trust reserves the right to
suspend the right of redemption and/or to postpone the date of payment upon
redemption for any period during which trading on the Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or valuation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of a Fund for any period during which the Exchange, Bank of America, the
Distributor, the Administrator, the Co-Administrator, and/or the Custodian are
not open for business.
EXCHANGES
By use of the exchange privilege, the shareholder authorizes the transfer agent
or the shareholder's financial institution to rely on telephonic instructions
from any person representing himself to be the investor and reasonably believed
to be genuine. The transfer agent's or a financial institution's records of such
instructions are binding. Exchanges are taxable transactions for Federal income
tax purposes; therefore, a shareholder will realize a capital gain or loss
depending on whether the shares being exchanged have a value which is more or
less than their adjusted cost basis.
The Trust may limit the number of times the exchange privilege may be exercised
by a shareholder within a specified period of time. Also, the exchange privilege
may be terminated or revised at any time by the Trust upon such notice as may be
required by applicable regulatory agencies (presently sixty days for termination
or material revision), provided that the exchange privilege may be terminated or
materially revised without notice under certain unusual circumstances.
The Prospectuses for each class of each Fund describe the exchange privileges
available to holders of such class of shares.
61
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
INVESTOR A SHARES
The Trust has adopted a Shareholder Servicing and Distribution Plan (the
"Investor A Plan" or the "Distribution Plan") pursuant to Rule 12b-1 under the
1940 Act with respect to each Fund's Investor A Shares. Rule 12b-1 regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of the
Trust and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). The Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and the purposes
of such expenditures be furnished to and reviewed by the Trustees, and the
Distribution Plan may not be amended to increase materially the amount which may
be spent thereunder without approval by a majority of the outstanding Investor A
Shares of the Trust. All material amendments of the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
The Investor A Plan provides that each Fund may pay the Distributor or banks,
broker/dealers or other financial institutions that offer shares of the Fund and
that have entered into a Sales Support Agreement with the Distributor ("Selling
Agents") or a Shareholder Servicing Agreement with the Trust ("Servicing
Agents"), up to 0.25% (on an annualized basis) of the average daily net asset
value of the Funds.
Payments under the Investor A Plan may be made to the Distributor for providing
the distribution-related services described above or to Servicing Agents that
have entered into a Shareholder Servicing Agreement with the Trust for providing
shareholder support services to their Customers which hold of record or
beneficially Investor A Shares of a Fund. Such shareholder support services
provided by Servicing Agents to holders of Investor A Shares of the Funds may
include (i) aggregating and processing purchase and redemption requests for
Investor A Shares from their Customers and transmitting promptly net purchase
and redemption orders to our distributor or transfer agent; (ii) providing their
Customers with a service that invests the assets of their accounts in Investor A
Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Trust on behalf of their Customers;
(iv) providing information periodically to their Customers showing their
positions in Investor A Shares; (v) arranging for bank wires; (vi) responding to
their Customers' inquiries concerning their investment in Investor A Shares;
(vii) providing sub-accounting with respect to Investor A Shares beneficially
owned by their Customers or the information necessary to us for sub-accounting;
(viii) if required by law, forwarding shareholder communications from the Trust
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to their Customers (ix)
forwarding to their Customers proxy statements and proxies containing any
proposals regarding the Shareholder Servicing Agreement; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Trust may reasonably request to the extent the Selling Agent is permitted to
do so under applicable statutes, rules or regulations.
Expenses incurred by the Distributor pursuant to the Investor A Plan in any
given year may exceed the sum of the fees received under the Investor A Plan.
Any such excess may be recovered by the Distributor in future years so long as
the Investor A Plan is in effect. If the Investor A Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund.
62
<PAGE>
INVESTOR B SHARES
The Trustees of the Trust have approved a Distribution Plan (the "Investor B
Distribution Plan" or the "Distribution Plan") with respect to Investor B Shares
of the Funds. Rule 12b-1 regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares. Continuance of the Distribution Plan must be approved annually by a
majority of the Trustees of the Trust and by a majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust and who have
no direct or indirect financial interest in the operation of the plan or in any
agreements thereunder (the "Qualified Trustees"). The Distribution Plan requires
that quarterly written reports of amounts spent under such Distribution Plan and
the purposes of such expenditures be furnished to and reviewed by the Trustees,
and the Distribution Plan may not be amended to increase materially the amount
which may be spent thereunder without approval by a majority of the outstanding
Investor B Shares of the Trust. All material amendments of the Distribution Plan
will require approval by a majority of the Trustees and of the Qualified
Trustees.
Pursuant to the Investor B Distribution Plan, a Fund may compensate or reimburse
the Distributor for any activities or expenses primarily intended to result in
the sale of the Fund's Investor B Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Investor B Shares with
the Distributor ("Selling Agents"). Payments under a Fund's Investor B
Distribution Plan will be calculated daily and paid monthly at a rate or rates
set from time to time by the Board of Trustees provided that the annual rate may
not exceed 0.75% of the average daily net asset value of each Fund's Investor B
Shares.
The fees payable under the Investor B Distribution Plan are used primarily to
compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Investor B
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative, operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
The fees payable under the Investor B Distribution Plan are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor B
Distribution Plan which exceed the total of (i) the payments made to the Selling
Agents and Servicing Agents by the Distributor or the Trust and reimbursed by
the Fund pursuant to the Investor B Distribution Plan, and (ii) the proceeds of
contingent deferred sales charges paid to the Distributor and reallowed to the
Selling Agent, upon the redemption of their Customers' Investor B Shares. Any
such excess expenses may be recovered in future years, so long as the Investor B
Distribution Plan is in effect.
63
<PAGE>
Because there is no requirement under the Investor B Distribution Plan that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor B
Distribution Plan be continued from year to year, such excess amount, if any,
does not constitute a liability to a Fund or the Distributor. Although there is
no legal obligation for the Fund to pay expenses incurred by the Distributor, a
Selling Agent or a Servicing Agent in excess of payments previously made to the
Distributor under the Investor B Distribution Plan or in connection with
contingent deferred sales charges, if for any reason the Investor B Distribution
Plan is terminated, the Trustees will consider at that time the manner in which
to treat such expenses.
INVESTOR C SHARES
The Trustees of the Trust have approved an Amended and Restated Distribution
Plan in accordance with Rule 12b-1 under the 1940 Act for the Investor C Shares
of the Funds (the "Investor C Plan" or the "Distribution Plan"). Rule 12b-1
regulates circumstances under which an investment company may directly or
indirectly bear expenses relating to the distribution of its shares. Continuance
of the Distribution Plan must be approved annually by a majority of the Trustees
of the Trust and by a majority of the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the operation of the plan or in any agreements thereunder
(the "Qualified Trustees"). The Distribution Plan requires that quarterly
written reports of amounts spent under such Distribution Plan and the purposes
of such expenditures be furnished to and reviewed by the Trustees, and the
Distribution Plan may not be amended to increase materially the amount which may
be spent thereunder without approval by a majority of the outstanding Investor C
Shares of the Trust. All material amendments of the Distribution Plan will
require approval by a majority of the Trustees and of the Qualified Trustees.
Pursuant to the Investor C Plan, each Fund may pay the Distributor for certain
expenses that are incurred in connection with the distribution of shares.
Payments under the Investor C Plan will be calculated daily and paid monthly at
a rate set from time to time by the Board of Trustees provided that the annual
rate may not exceed 0.75% of the average daily net asset value of Investor C
Shares of a Fund. Payments to the Distributor pursuant to the Investor C Plan
will be used (i) to compensate banks, other financial institutions or a
securities broker/dealer that have entered into a Sales Support Agreement with
the Distributor ("Selling Agents") for providing sales support assistance
relating to Investor C Shares, for promotional activities intended to result in
the sale of or Investor C Shares such as to pay for the preparation, printing
and distribution of prospectuses to other than current shareholders, and (iii)
to compensate Selling Agents for providing sales support services with respect
to their Customers who are, from time to time, beneficial and record holders of
Investor C Shares. Currently, substantially all fees paid pursuant to the
Investor C Plan are paid to compensate Selling Agents for providing the services
described in (i) and (iii) above, with any remaining amounts being used by the
Distributor to partially defray other expenses incurred by the Distributor in
distributing Investor C Shares. Fees received by the Distributor pursuant to the
Investor C Plan will not be used to pay any interest expenses, carrying charges
or other financing costs (except to the extent permitted by the SEC) and will
not be used to pay any general and administrative expenses of the Distributor.
Pursuant to the Investor C Plan, the Distributor may enter into Sales Support
Agreements with Selling Agents for providing sales support services to their
Customers who are the record or beneficial owners of Investor C Shares of the
Funds. Such Selling Agents will be compensated at the annual rate of up to 0.75%
of the average daily net asset value of the Investor C Shares of the Funds held
of record or beneficially by such Customers. The sales support services provided
by Selling Agents may include
64
<PAGE>
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor C Plan are accrued daily and paid monthly,
and are charged as expenses of the relevant shares of a Fund as accrued.
Expenses incurred by the Distributor pursuant to the Investor C Plan in any
given year may exceed the sum of the fees received under the Investor C Plan and
payments received pursuant to contingent deferred sales charges. Any such excess
may be recovered by the Distributor in future years so long as the Investor C
Plan is in effect. If the Investor C Plan were terminated or not continued, a
Fund would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through contingent
deferred sales charges.
In addition, the Trustees have approved an Amended and Restated Shareholder
Servicing Plan ("Servicing Plan") with respect to the Investor C Shares of the
Funds (the "Investor C Servicing Plan"). Pursuant to the Investor C Servicing
Plan, each Fund may pay banks, broker/dealers or other financial institutions
that have entered into a Shareholder Servicing Agreement with Nations Funds
("Servicing Agents") for certain expenses that are incurred by the Servicing
Agents in connection with shareholder support services that are provided by the
Servicing Agents. Payments under the Investor C Servicing Plan will be
calculated daily and paid monthly at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Funds' Investor C Shares. The shareholder services
provided by the Servicing Agents may include (i) aggregating and processing
purchase and redemption requests for such Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor C Shares pursuant to specific or
pre-authorized instructions; (iii) dividend and distribution payments from the
Trust on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor C Shares; (v) arranging for
bank wires; (vi) responding to Customers' inquiries concerning their investment
in such Investor C Shares; (vii) providing sub-accounting with respect to such
Investor C Shares beneficially owned by Customers or providing the information
to us necessary for sub-accounting; (viii) if required by law, forwarding
shareholder communications from the Trust (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Shareholder Servicing Agreement; (x)
providing general shareholder liaison services; and (xi) providing such other
similar services as the Trust may reasonably request to the extent the Servicing
Agent is permitted to do so under applicable statutes, rules or regulations.
The shareholder servicing plan with respect to the Investor C Plan and the
Investor C Servicing Plan (collectively, the "Plans") will continue in effect
only so long as such continuance is approved at least annually by (i) a majority
of the Board of Trustees, and (ii) a majority of the Qualified Trustees,
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the Plan. Each Plan may not be amended to increase materially the amount
which may be spent thereunder without approval of a majority of the outstanding
Shares of such Fund. All material amendments to a Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Plans require
that quarterly written reports of the amounts spent under the Plans and the
purposes of such expenditures be furnished to, and reviewed by, the Trustees.
PRIMARY B SHARES
As stated in the Prospectus for the Funds' Primary B Shares, the Trust has a
Shareholder Administration Plan (the "Administration Plan") with respect to such
shares. Pursuant to the Administration Plan, the
65
<PAGE>
Trust may enter into agreements ("Administration Agreements") with
broker/dealers, banks and other financial institutions that are dealers of
record or holders of record or which have a servicing relationship with the
beneficial owners of Primary B Shares of the Funds ("Servicing Agents"). The
Administration Plan provides that pursuant to the Administration Agreements,
Servicing Agents shall provide the shareholder support services as set forth
therein to their customers who may from time to time own of record or
beneficially Primary B Shares ("Customers") in consideration for the payment of
up to 0.60% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase, exchange and
redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders with the Distributor or the transfer
agents; (ii) providing Customers with a service that invests the assets of their
accounts in Primary B Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the Trust
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Primary B Shares; (v) arranging for bank wires; (vi)
responding to Customer inquiries concerning their investment in Primary B
Shares; (vii) providing sub-accounting with respect to Primary B Shares
beneficially owned by Customers or the information necessary for sub-accounting;
(viii) if required by law, forwarding shareholder communications (such as
proxies, shareholder reports annual and semi-annual financial statements and
dividend, distribution and tax notices) to Customers; (ix) forwarding to
Customers proxy statements and proxies containing any proposals regarding an
Administration Agreement; (x) employee benefit plan recordkeeping,
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C>
NET
NET FEES PAID (SHAREHOLDER NET
FEES PAID (12B-1 COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 PAID
---- ------------------ ------------------ ----
International Equity Fund [ ] [ ] [ ]
International Value Fund [ ] [ ] [ ]
Emerging Markets Fund [ ] [ ] [ ]
Marsico Focused Equities Fund [ ] [ ] [ ]
Marsico Growth & Income Fund [ ] [ ] [ ]
</TABLE>
66
<PAGE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C>
NET
NET FEES PAID (SHAREHOLDER NET
FEES PAID (12B-1 COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 PAID
---- ------------------ ------------------ ----
International Equity Fund [ ] [ ] [ ]
International Value Fund [ ] [ ] [ ]
Emerging Markets Fund [ ] [ ] [ ]
Marsico Focused Equities Fund [ ] [ ] [ ]
Marsico Growth & Income Fund [ ] [ ] [ ]
</TABLE>
NOTE: All fees paid under the Investor A and Investor C Shares Distribution
Plans were accrued as payments to broker/dealers and financial
institutions offering such shares to their customers.
INVESTOR B SHARES
<TABLE>
<CAPTION>
<S> <C>
NET
NET FEES PAID (SHAREHOLDER NET
FEES PAID (12B-1 COMPONENT) SERVICING COMPONENT) FEES
FUND YEAR ENDED 3/31/99 YEAR ENDED 3/31/99 PAID
International Equity Fund [ ] [ ] [ ]
International Value Fund [ ] [ ] [ ]
Emerging Markets Fund [ ] [ ] [ ]
Marsico Focused Equities Fund [ ] [ ] [ ]
Marsico Growth & Income Fund [ ] [ ] [ ]
</TABLE>
67
<PAGE>
FEES PAID PURSUANT TO THE ADMINISTRATION PLAN
PRIMARY B SHARES
<TABLE>
<CAPTION>
<S> <C>
NET ADMIN NET ADMIN
FEES PAID FEES WAIVED
--------- -----------
International Equity Fund [ ] [ ]
International Value Fund [ ] [ ]
Emerging Markets Fund [ ] [ ]
Marsico Focused Equities Fund [ ] [ ]
Marsico Growth & Income Fund [ ] [ ]
</TABLE>
DETERMINATION OF NET ASSET VALUE
A security listed or traded on an exchange is valued at its last sales price on
the exchange where the security is principally traded or, lacking any sales on a
particular day, the security is valued at the mean between the closing bid and
asked prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. Each security reported on the
NASDAQ National Market System is valued at the last sales price on the valuation
date. With respect to [THE FUNDS], securities may be valued on the basis of
prices provided by an independent pricing service. Prices provided by the
pricing service may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as yield, type of issue, coupon rate
maturity and seasoning differential. Securities for which prices are not
provided by the pricing service are valued at the mean between the last bid and
asked prices based upon quotes furnished by market makers for such securities.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board of Trustees of
the Trust. Short-Term obligations having 60 days or less to maturity are valued
at amortized cost, which approximates market value.
Generally, trading in foreign securities, as well as U.S. Government securities,
money market instruments and repurchase agreements, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the shares of
the Fund are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the New York Stock Exchange, which will not be reflected in the computation of
net asset value. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Trustees.
For purposes of determining the net asset value per share of the Funds that
invest in foreign securities or engage in Foreign Currency Transactions, all
assets and liabilities of the Funds initially expressed in foreign currencies
will be converted into U.S. dollars at the mean between the bid and offer prices
of such currencies against U.S. dollars quoted by a major bank that is a regular
participant in the foreign
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exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.
The Trust may redeem shares involuntarily to reimburse the Funds for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
such shares as provided in the related Prospectuses from time to time. The Trust
also may make payment for redemptions in readily marketable securities or other
property if it is appropriate to do so in light of the Trust's responsibilities
under the 1940 Act.
Under the 1940 Act, the Funds may suspend the right of redemption or postpone
the date of payment for shares of the Funds during any period when (a) trading
on the Exchange is restricted by applicable rules and regulations of the SEC;
(b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. (The Funds may also suspend or
postpone the recordation of the transfer of their shares upon the occurrence of
any of the foregoing conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction with
Prospectus section entitled "Tax Information." The Prospectuses of the Funds
describes generally the tax treatment of distributions by the Funds. This
section of the SAI includes additional information concerning income taxes.
GENERAL
The Trust intends to continue to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for Federal income
tax purposes and thus the provisions of the Code applicable to regulated
investment companies will generally be applied separately to each Fund, rather
than to the Trust as a whole. In addition, net capital gains, net investment
income, and operating expenses will be determined separately for each Fund. As a
regulated investment company, each Fund will not be taxed on its net investment
income and capital gains distributed to its shareholders.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) each Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
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In addition, a regulated investment company must, in general, derive less than
30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 7, 1997.
The Funds must also distribute or be deemed to distribute to their shareholders
at least 90% of their net investment income (including, for this purpose, net
short-term capital gain) earned in each taxable year. In general, these
distributions must actually or be deemed to be made in the taxable year.
However, in certain circumstances, such distributions may be made in the 12
months following the taxable year. The Funds intend to pay out substantially all
of their net investment income and net realized capital gains (if any) for each
year.
EXCISE TAX
A 4% nondeductible excise tax will be imposed on each Fund (other than to the
extent of its tax-exempt interest income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. Each Fund
intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
PRIVATE LETTER RULING
In order for a Fund to maintain regulated investment company status under the
Code, its dividends, including--for this purpose--capital gain distributions,
must not constitute "preferential dividends," within the meaning of Section
562(c) of the Code. The Companies have received a private letter ruling from the
Internal Revenue Service ("IRS") generally to the effect that the following will
not give rise to preferential dividends: differing fees imposed on the different
classes of shares with respect to servicing, distribution and administrative
support services, and transfer agency arrangements; differing sales charges on
purchases and redemptions of such shares; and conversion features resulting in
the Companies paying different dividends or distributions on the different
classes of shares.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio securities
by a Fund will generally be capital gains and losses. Such gains and losses will
ordinarily be long-term capital gains and losses if the securities have been
held by the Fund for more than 12 months at the time of disposition of the
securities. However, see "Capital Gains Distributions" below.
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount which
accrued, but was not previously recognized pursuant to an available election,
during the term the Fund held the debt obligation.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. Some realized capital losses may be deferred if they result
from a position which is part of a "straddle," discussed below. If securities
are sold by a Fund pursuant to the exercise of a call
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option written by it, the Fund will add the premium received to the sale price
of the securities delivered in determining the amount of gain or loss on the
sale. If securities are purchased by a Fund pursuant to the exercise of a put
option written by it, such Fund will subtract the premium received from its cost
basis in the securities purchased.
The amount of any gain or loss realized by a Fund on closing out a regulated
futures contract will generally result in a realized capital gain or loss for
Federal income tax purposes. Regulated futures contracts held at the end of each
fiscal year will be required to be "marked to market" for Federal income tax
purposes pursuant to Section 1256 of the Code. In this regard, they will be
deemed to have been sold at market value. Sixty percent (60%) of any net gain or
loss recognized on these deemed sales and sixty percent (60%) of any net
realized gain or loss from any actual sales, will generally be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss. Transactions that qualify as designated hedges are
excepted from the "mark-to-market" rule and the "60%/40%" rule.
Under Section 988 of the Code, a Fund will generally recognize ordinary income
or loss to the extent gain or loss realized on the disposition of portfolio
securities is attributable to changes in foreign currency exchange rates. In
addition, gain or loss realized on the disposition of a foreign currency forward
contract, futures contract, option or similar financial instrument, or of
foreign currency itself, will generally be treated as ordinary income or loss.
The Funds will attempt to monitor Section 988 transactions, where applicable, to
avoid adverse tax impact.
Offsetting positions held by a Fund involving certain financial forward, futures
or options contracts may be considered, for tax purposes, to constitute
"straddles." "Straddles" are defined to include "offsetting positions" in
actively traded personal property. The tax treatment of "straddles" is governed
by Section 1092 of the Code which, in certain circumstances, overrides or
modifies the provisions of Section 1256. If a Fund were treated as entering into
"straddles" by engaging in certain financial forward, futures or option
contracts, such straddles could be characterized as "mixed straddles" if the
futures, forwards, or options comprising a part of such straddles were governed
by Section 1256 of the Code. The Fund may make one or more elections with
respect to "mixed straddles." Depending upon which election is made, if any, the
results with respect to the Fund may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund, losses realized by
the Fund may be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and the conversion transaction
rules, short-term capital loss on straddle positions may be recharacterized as
long-term capital loss, and long-term capital gain may be characterized as
short-term capital gain or ordinary income.
If a Fund enters into a "constructive sale" of any appreciated position in
stock, a partnership interest, or certain debt instruments, the Fund must
recognize gain (but not loss) with respect to that position. For this purpose, a
constructive sale occurs when the Fund enters into one of the following
transactions with respect to the same or substantially identical property: (i) a
short sale; (ii) an offsetting notional principal contract; or (iii) a futures
or forward contract.
If a Fund purchases shares in a "passive foreign investment company" ("PFIC"),
the Fund may be subject to Federal income tax and an interest charge imposed by
the IRS upon certain distributions from the PFIC or the Fund's disposition of
its PFIC shares. If the Fund invests in a PFIC, the Fund intends to make an
available election to mark-to-market its interest in PFIC shares. Under the
election, the Fund will be treated as recognizing at the end of each taxable
year the difference, if any, between the fair market value of its interest in
the PFIC shares and its basis in such shares. In some circumstances, the
recognition of loss may be suspended. The Fund will adjust its basis in the PFIC
shares by the amount of
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income (or loss) recognized. Although such income (or loss) will be taxable to
the Fund as ordinary income (or loss) notwithstanding any distributions by the
PFIC, the Fund will not be subject to Federal income tax or the interest charge
with respect to its interest in the PFIC under the election.
FOREIGN TAXES
Income and dividends received by a Fund from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. If more than 50% of the value of a Fund's total assets at
the close of its taxable year consists of securities of non-U.S. corporations,
the Fund will be eligible to file an election with the IRS pursuant to which the
regulated investment company may pass-through to its shareholders foreign taxes
paid by the regulated investment company, which may be claimed either as a
credit or deduction by the shareholders. Only the [ ] FUND expects to qualify
for this election. However, even if a Fund qualifies for the election, foreign
taxes will only pass-through to a Fund shareholder if (i) the shareholder holds
the Fund shares for at least 16 days during the 30 day period beginning 15 days
prior to the date upon which the shareholder becomes entitled to receive Fund
dividends corresponding with the pass-through of the foreign taxes paid by the
Fund, and (ii) with respect to foreign source dividends received by the Fund on
shares giving rise to foreign tax, the Fund holds the shares for at least 16
days during the 30 day period beginning 15 days prior to the date upon which the
Fund becomes entitled to the dividend.
For tax years beginning after December 31, 1997, an individual with $300 or less
of creditable foreign taxes generally is exempt from foreign source income and
certain other limitations imposed by the Code on claiming a credit for such
taxes. The $300 amount is increased to $600 for joint filers.
CAPITAL GAINS DISTRIBUTIONS
Distributions which are designated by a Fund as capital gains distributions will
be taxed to shareholders as long-term term capital gains (to the extent such
dividends do not exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gains distributions in a written
notice mailed by the Fund to the shareholders not later than 60 days after the
close of the Fund's taxable year.
OTHER DISTRIBUTIONS
Although dividends of net investment income will be declared daily based on each
Fund's daily earnings, for Federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For Federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year a Fund's declared dividends (as declared daily throughout the year)
exceed the Fund's net income (as determined at the end of the year), only that
portion of the year's distributions which equals the year's earnings and profits
will be deemed to have constituted a dividend. It is expected that each Fund's
net income, on an annual basis, will equal the dividends declared during the
year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to redemption (including a redemption
in-kind) or exchanges will ordinarily result in a taxable capital gain or loss,
depending on the amount received for the Shares (or are deemed to receive in the
case of an exchange) and the cost of your Shares.
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If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge or load on a
new purchase of shares of the Fund or a different regulated investment company,
the sales charge or load previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charge or load does
not exceed the reduction in sales charge or load on the new purchase) for the
purpose of determining the amount of gain or loss on the disposition, but will
be treated as having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of shares of the Fund will
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder holds Fund shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. In addition, if a shareholder receives a
designated capital gain distribution with respect to any Fund share and such
Fund share is held for six months or less, then (unless otherwise disallowed)
any loss on the sale or exchange of that Fund share will be treated as a
long-term capital loss to the extent of the designated capital gain
distribution. The foregoing recharacterization and disallowance rules do not
apply to losses realized under a periodic redemption plan.
FEDERAL INCOME TAX RATES
As of the printing of this SAI, the maximum individual tax rate applicable to
ordinary income is 39.6% (marginal tax rates may be higher for some individuals
to reduce or eliminate the benefit of exemptions and deductions); the maximum
individual marginal tax rate generally applicable to net capital gains is 20%;
and the maximum corporate tax rate applicable to ordinary income and net capital
gains is 35% (marginal tax rates may be higher for some corporations to reduce
or eliminate the benefit of lower marginal income tax rates). Naturally, the
amount of tax payable by an individual or corporation will be affected by a
combination of tax laws covering, for example, deductions, credits, deferrals,
exemptions, sources of income and other matters.
CORPORATE SHAREHOLDERS
Corporate shareholders of the Funds may be eligible for the dividends-received
deduction on dividends distributed out of a Fund's net investment income
attributable to dividends received from domestic corporations, which, if
received directly by the corporate shareholder, would qualify for such
deduction. A distribution by a Fund attributable to dividends of a domestic
corporation will only qualify for the dividends-received deduction if (i) the
corporate shareholder generally holds the Fund shares upon which the
distribution is made for at least 46 days during the 90 day period beginning 45
days prior to the date upon which the shareholder becomes entitled to the
distribution; and (ii) the Fund generally holds the shares of the domestic
corporation producing the dividend income for at least 46 days during the 90 day
period beginning 45 days prior to the date upon which the Fund becomes entitled
to such dividend income.
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FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income by the Fund to a
nonresident alien individual, foreign trust (I.E., trust which a U.S. court is
able to exercise primary supervision over administration of that trust and one
or more U.S. persons have authority to control substantial decisions of that
trust), foreign estate (i.e., the income of which is not subject to U.S. tax
regardless of source), foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to Federal withholding tax (at a rate of 30% or,
if an income tax treaty applies, at the lower treaty rate, if any). Such tax
withheld is generally not refundable. Withholding will not apply if a dividend
paid by the Fund to a foreign shareholder is "effectively connected" with a U.S.
trade or business (or, if an income tax treaty applies, is attributable to a
U.S. permanent establishment of the foreign shareholder), in which case the
reporting and withholding requirements applicable to U.S. persons will apply.
Distributions of net capital gains are generally not subject to tax withholding
applicable to foreign shareholders.
NEW REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the "New
Regulations") which make certain modifications to the backup withholding, U.S.
income tax withholding and information reporting rules applicable to foreign
shareholders. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Among other
things, the New Regulations will permit the Funds to estimate the portion of
their distributions qualifying as capital gain distributions for purposes of
determining the portion of such distributions paid to foreign shareholders which
will be subject to U.S. income tax withholding. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
BACKUP WITHHOLDING
The Trust may be required to withhold, subject to certain exemptions, at a rate
of 31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless a shareholder
certifies that the Taxpayer Identification Number ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or the shareholder is
subject to backup withholding. Such tax withheld does not constitute any
additional tax imposed on the shareholder, and may be claimed as a tax payment
on the shareholder's Federal income tax return. An investor must provide a valid
TIN upon opening or reopening an account. Failure to furnish a valid TIN to the
Trust could subject the investor to penalties imposed by the IRS.
OTHER MATTERS
Investors should be aware that the investments to be made by the Funds may
involve sophisticated tax rules that may result in income or gain recognition by
the Fund without corresponding current cash receipts. Although the Funds will
seek to avoid significant noncash income, such noncash income could be
recognized by the Funds, in which case the Funds may distribute cash derived
from other sources in order to meet the minimum distribution requirements
described above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal tax considerations generally
affecting investments in the Funds. Each investor
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is urged to consult his or her tax advisor regarding specific questions as to
federal, state, local and foreign taxes.
FUND TRANSACTIONS AND BROKERAGE
GENERAL BROKERAGE POLICY
Subject to policies established by the Board of Trustees of the Trust, the
Adviser is responsible for decisions to buy and sell securities for each Fund,
for the selection of broker/dealers, for the execution of such Fund's securities
transactions, and for the allocation of brokerage fees in connection with such
transactions. The Adviser's primary consideration in effecting a security
transaction is to obtain the best net price and the most favorable execution of
the order. Purchases and sales of securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker to the extent and in the manner permitted
by applicable law.
In the over-the-counter market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without stated
commissions, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
that includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Adviser is required to
give primary consideration to obtaining the most favorable price and efficient
execution. This means that the Adviser will seek to execute each transaction at
a price and commission, if any, which provide the most favorable total cost or
proceeds reasonably attainable in the circumstances. In seeking such execution,
the Adviser will use its best judgment in evaluating the terms of a transaction,
and will give consideration to various relevant factors, including, without
limitation, the size and type of the transaction, the nature and character of
the market for the security, the confidentiality, speed and certainty of
effective execution required for the transaction, the general execution and
operational capabilities of the broker-dealer, the reputation, reliability,
experience and financial condition of the firm, the value and quality of the
services rendered by the firm in this and other transactions and the
reasonableness of the spread or commission, if any. In addition, the Adviser
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of a Fund, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of a Fund. Services furnished by such brokers may be used by
the Adviser in providing investment advisory and investment management services
for the Trust.
Commission rates are established pursuant to negotiations with the broker based
on the quality and quantity of execution services provided by the broker in the
light of generally prevailing rates. The allocation of orders among brokers and
the commission rates paid are reviewed periodically by the Trustees of the
Trust. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions on foreign stock
exchanges involve payment of brokerage commissions which are generally fixed.
Transactions in both foreign and domestic over-the-counter
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markets are generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Adviser, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
In certain instances there may be securities which are suitable for more than
one Fund as well as for one or more of the other clients of the Adviser.
Investment decisions for each Fund and for the Adviser's other clients are made
with the goal of achieving their respective investment objectives. It may happen
that a particular security is bought or sold for only one client even though it
may be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Fund is concerned. The
Trust believes that over time its ability to participate in volume transactions
will produce superior executions for the Funds.
The portfolio turnover rate for each Fund is calculated by dividing the lesser
of purchases or sales of portfolio securities for the reporting period by the
monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment.
The Funds may participate, if and when practicable, in bidding for the purchase
of portfolio securities directly from an issuer in order to take advantage of
the lower purchase price available to members of a bidding group. A Fund will
engage in this practice, however, only when the Adviser, in its sole discretion,
believes such practice to be otherwise in the Fund's interests.
The Trust will not execute portfolio transactions through, or purchase or sell
portfolio securities from or to the distributor, the Adviser, the administrator,
the co-administrator or their affiliates, acting as principal (including
repurchase and reverse repurchase agreements), except to the extent permitted by
applicable law. In addition, the Trust will not give preference to
correspondents of Bank of America or its affiliates, with respect to such
transactions or securities. (However, 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 Bank of America or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the distributor, the Adviser, the administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless an exemptive order allowing such transactions is
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obtained from the SEC. Each of the Funds may purchase securities from
underwriting syndicates of which Bank of America or any of its affiliates is a
member under certain conditions, in accordance with the provisions of a rule
adopted under the 1940 Act and any restrictions imposed by the Board of
Governors of the Federal Reserve System.
Investment decisions for each Fund are made independently from those for the
Trust's other investment portfolios, other investment companies, and accounts
advised or managed by the Adviser. Such other investment portfolios, investment
companies, and accounts may also invest in the same securities as the Funds.
When a purchase or sale of the same security is made at substantially the same
time on behalf of one or more of the Funds and another investment portfolio,
investment company, or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to each Fund and such other investment portfolio,
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser may aggregate the securities to be sold or purchased for the Funds with
those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
SECTION 28(E) STANDARDS
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser shall
not be "deemed to have acted unlawfully or to have breached its fiduciary duty"
solely because under certain circumstances it has caused the account to pay a
higher commission than the lowest available. To obtain the benefit of Section
28(e), the Adviser must make a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ...viewed in terms of either that particular transaction or
its overall responsibilities with respect to the accounts as to which it
exercises investment discretion and that the services provided by a broker
provide an adviser with lawful and appropriate assistance in the performance of
its investment decision making responsibilities." Accordingly, the price to a
Fund in any transaction may be less favorable than that available from another
broker/dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical, research and
other information or services which are deemed by the Adviser to be beneficial
to the Funds' investment programs. Research services received from brokers
supplement the Adviser's own research and may include the following types of
information: statistical and background information on industry groups and
individual companies; forecasts and interpretations with respect to U.S and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Trust's Trustees with respect to the performance, investment activities
and fees and expenses of other mutual funds. Such information may be
communicated electronically, orally or in written form. Research services may
also include the providing of equipment used to communicate research
information, the arranging of meetings with management of companies and the
providing of access to consultants who supply research information.
The outside research assistance is useful to the Adviser since the brokers
utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all
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accounts managed or advised by the Adviser. In some cases, the research services
are available only from the broker providing such services. In other cases, the
research services may be obtainable from alternative sources in return for cash
payments. The Adviser is of the opinion that because the broker research
supplements rather than replaces its research, the receipt of such research does
not tend to decrease its expenses, but tends to improve the quality of its
investment advice. However, to the extent that the Adviser would have purchased
any such research services had such services not been provided by brokers, the
expenses of such services to the Adviser could be considered to have been
reduced accordingly. Certain research services furnished by broker/dealers may
be useful to the Adviser with clients other than the Funds. Similarly, any
research services received by the Adviser through the placement of fund
transactions of other clients may be of value to the Adviser in fulfilling its
obligations to the Funds. The Adviser is of the opinion that this material is
beneficial in supplementing its research and analysis; and, therefore, it may
benefit the Trust by improving the quality of the Adviser's investment advice.
The advisory fees paid by the Trust are not reduced because the Adviser receives
such services.
Some broker/dealers may indicate that the provision of research services is
dependent upon the generation of certain specified levels of commissions and
underwriting concessions by the Adviser's clients, including the Funds.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BNY"), 90 Washington Street, New York, New York 10286,
serves as custodian ("Custodian") for the securities and cash of each Fund.
NationsBank of Texas, N.A. served as Custodian for the securities and cash of
each Fund for the fiscal year ended April 30, 1998. As custodian, BNY, maintains
custody of the Funds' securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of the Funds for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Funds all
checks, and receives all dividends and other distributions made on securities
owned by the Funds. For such services, BNY, is entitled to receive, in addition
to out-of-pocket expenses, fees at the rate of (i) 3/4 of one basis point per
annum on the aggregate net assets of all Nations Funds non-money market Funds up
to $10 billion and (ii) 1/2 of one basis point on the excess, including all
Nations Funds money market Funds
The Bank of New York ("BONY"), located at Avenue des Arts, 35 1040 Brussels,
Belgium, serves as custodian for the assets of the international Funds.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to delegate
certain foreign custody matters to foreign custody managers and to modify the
criteria applied in the selection process. Accordingly, BONY serves as Foreign
Custody Manager, pursuant to a Foreign Custody Manager Agreement, under which
the Boards of Directors/Trustees retain the responsibility for selecting foreign
compulsory depositories, although BONY agrees to make certain findings with
respect to such depositories and to monitor such depositories.
[FOR THE FISCAL YEAR ENDED MARCH 31, 1999, THE TRUST PAID $[_______] IN
AGGREGATE FEES TO NATIONSBANK, N.A. FOR ITS SERVICES AS CUSTODIAN FOR THE SHARES
OF EACH FUND.]
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent for the Funds. Under the transfer agency agreement, the
transfer agent maintains the shareholder account records for the Trust, handles
certain communications between shareholders and the Trust, and
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distributes dividends and distributions payable by the Trust to shareholders,
and produces statements with respect to account activity for the Trust and its
shareholders for these services.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the shares of the Funds.
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Companies or
the Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Companies pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors/Trustees
or a vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors/Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, or by the Distributor.
DESCRIPTION OF SHARES
Net investment income for the Funds for dividend purposes consists of (i)
interest accrued and original issue discount earned on a Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Trust prorated to a Fund on the basis of
its relative net assets, plus dividend or distribution income on a Fund's
assets.
Prior to purchasing shares in one of the Funds, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Shareholders receiving a distribution in the form of additional shares will be
treated as receiving an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of shares of the Funds and different classes of each Fund. Each Fund
offers Investor A Shares, Investor B Shares, Investor C Shares, Primary A Shares
and Primary B Shares. Except for differences between classes of a Fund
pertaining to distribution arrangements, each share of a Fund represents an
equal proportionate
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interest in that Fund with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the Funds.
Shareholders have no preemptive rights. The Agreement and Declaration of Trust
provides that the Trustees of the Trust may create additional Funds or classes
of shares. All consideration received by the Trust for shares of any additional
series and all assets in which such consideration is invested would belong to
that Fund and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
The Funds use the so-called "equalization accounting method" to allocate a
portion of earnings and profits to redemption proceeds. This method permits a
fund to achieve more balanced distributions for both continuing and departing
shareholders. Continuing shareholders should realize tax savings or deferrals
through this method, and departing shareholders will not have their tax
obligations change. Although using this method will not affect a Fund's total
returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
Each Fund or class of a Fund will vote separately on matters pertaining solely
to such Fund or class. Such matters include matters relating to a Fund's
investment advisory agreement or a class' distribution plan. All Funds will vote
as a whole on matters affecting all Funds such as the election of Trustees and
the appointment of the Trust's independent accountant.
5% SHAREHOLDERS
The following table sets forth certain information concerning each person who,
to the Trust's knowledge, is a record owner of 5% or more of the Shares of a
class of a Fund. Information is given as of [AUGUST 13, 1998.]
PERCENTAGE OF SHARES
NAME AND ADDRESS HELD OF RECORD ONLY
- ---------------- -------------------
NATIONS INTERNATIONAL EQUITY FUND
Investor A Shares
Roy R. Martine & 11.9072%
Kathleen H. Maritine JTWROS
4009 Tottenham Court
Richmond, VA 23233-1771
BNY Cust 7.8436%
Rollover IRA FBO
William D. Patterson
1742 Hilltop
Kingwood, TX 77339
Charles Schwab & Co Inc. 5.8082%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
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Investor C Shares
C. A. Porterfield & 9.1623%
Rosalee Moxley &
Frank Minton TTEES
Starmount Company
Capital Accumulation Plan
PO Box 10348
Greensboro, NC 27404-0349
C. A. Porterfield & 8.9453%
Rosalee Moxley &
Frank Minton TTEES FBO
Starmount Company Employees
Tax Deferree Savings Plan
PO Box 10349
Greensboro, NC 27404-0349
Tatsushi T. Kubo, 7.79%
Max W. Dahlgren &
John Dahlgren TTEES FBO
Epic Products International
Corporation 401(k) Plan
2801 Randal Mill Road
Arlington, TX 76005
Summerville Pediatrics PA 6.9734%
Money Purchase Pension Plan
312 Midland Parkway
Summerville, SC 29485-8114
H. Grayson Mitchell Jr. and 6.9086%
John Rawls TTEE FBO
Grayson Mitchell Inc. 410K Plan
PO Box 128
Emporia, VA 23847
Deeb Oweis and 6.9025%
Mohammad Oweis TTEES FBO
Amtec International Inc.
Profit Sharing Plan
1200 Woodruff Road A-2
Greenville, SC 29607
E. Larry Fonts TTEE FBO 6.6754%
Central Dallas Association
Profit Sharing Plan
1201 Elm Street, Suite 5310
Dallas, TX 75270
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Primary A Shares
NationsBank Of Texas NA 94.5106
Attn: Adrian Castillo
1401 Elm St 11th Floor
Dallas, TX 75202-2911
Primary B Shares
Stephens Inc. 100%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
NATIONS EMERGING MARKETS FUND
Investor A
Charles Schwab & Co Inc. 12.0748%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Robert Kadlec 5.3546%
380 Rector Place Apt 4H
New York, NY 10280
BNY Cust IRA Rollover FBO 5.3356%
Steven W. Duff
1965 Broadway
New York, NY 10023
Investor C Shares
Marcus J. Dash 37.6123%
4900 Northside Drive
Atlanta, GA 30327
Hi-Tech Communications Inc. 26.7968%
401(k) Plan
PO Box 1569
League City, TX 77574-1569
Munawar H. Hidayatallah 13.709%
1000 Louisiana Ste. 5900
Houston, TX 77002-5014
Summerville Pediatrics PA 7.9296%
Money Purchase Pension Plan
312 Midland Parkway
Summerville, SC 29485-8114
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Primary A Shares
NationsBank of Texas NA 99.9108%
Attn: Adrian Castillo
1401 Elm Street 11th Floor
Dallas, TX 75202-2911
Primary B Shares
Obie & Co 99.9718%
FBO Barron Orendaine P/S
#02096 2689500
Attn: Mutual Fund Unit (16 HCB 09)
PO Box 200547
Houston, TX 77216-0547
NATIONS MARSICO FOCUSED EQUITIES FUND
Investor A Shares
Charles Schwab & Co. Inc. 46.5521%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Investor C Shares
Geneviene M. Galliford 33.7419%
2325 Shore Sands Court #301
Virginia Beach, VA 23451-0000
Dean Witter For the Benefit of the 13.9732%
Friedman Liv Trust
PO Box 250 Church Street Station
New York, NY 10008-0250
Harvey A. Cook and 11.1109%
Kathi W. Cook JTTEN
801 Ond Drive
West Columbia, SC 29170-2521
Gregg Freishtat 9.2337%
2078 Runfroe Lake Drive
Dunwoody, GA 30338
Primary A Shares
Charles Schwab & Co. Inc. 53.992%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
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101 Montgomery Street
San Francisco, CA 94104
NationsBank of Texas NA 22.4672%
Attn: Adrian Castillo
1401 Elm Street 11th Floor
Dallas, TX 75202-2911
Stephens Inc 9.4655%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
FTC & Co. 8.3874%
Data Lynx House Acct 04/13/98
PO Box 173736
Denver, CO 80217-3736
NATIONS MARSICO GROWTH & INCOME FUND
Investor A Shares
Charles Schwab & Co. Inc. 54.3349%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Edd Price Jr. and 6.4849%
Lynn Price JTTEN
5600 Oakbrook Pkwy, Suite 120
Norcross, GA 30093
Investor C Shares
Dean Witter For the Benefit of 61.2996%
Ramson Inc.
PO Box 250 Church Street Station
New York, NY 10008-0250
Wallace J. Davis and 9.0757%
Connie S. Davis JTTEN
1418 E Sevier Avenue
Kingsport, TN 37664
Dean Witter For the Benefit of 5.0006%
Berhard Von Ruecker
PO Box 250 Church Street Station
New York, NY 10008-0250
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Primary A Shares
Charles Schwab & Co. Inc. 65.6716%
Special Custody Account
For Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104
Stephens Inc. 19.5815%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
NATIONS INTERNATIONAL VALUE FUND
Investor B Shares
NFSC FEBO #W23-000582 14.8437%
Elizabeth A. Ezenna
915 Peachwood Bend
Houston, TX 77077
Nicholas E. Lansing & 7.5732%
Carla S. Lansing JTTEN
RR 1 Box 212
Ursa, IL 62376-9801
Mary Anna Montalbano 7.3955%
Separate Property
6043 Crab Orchard
Houston, TX 77057
Investor C Shares
BNY Cust IRA Rollover FBO 99.9393%
Arved E. White
14810 Forest Lodge Circle
Houston, TX 77070
Primary A Shares
BBTC NA 42.7604
Retirmt PL & TR Of BBI &
Affiliates
U/A/D 9/19/79
Attn: Income Collections
PO Box 40200
Jacksonville, FL 32203-0200
NationsBank of Texas NA 9.7719%
Attn: Adrian Castillo
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1401 Elm Street 11th Floor
Dallas, TX 75202-2911
Primary B Shares
Stephens Inc. 100%
Attn: Cindy Cole
111 Center Street
Little Rock, AR 72201
As of [__________], Bank of America Corporation and its affiliates owned of
record more than 25% of the outstanding shares of the companies acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of such companies under the 1940 Act.]
REPORTS, EXPERTS, AND FINANCIAL INFORMATION
The Trust issues unaudited financial information semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
shareholder reports to shareholders of record. The annual financial statements
will be audited by the Trust's independent accountant. The Board of Trustees has
selected PricewaterhouseCoopers LLP, 160 Federal Street, Boston, Massachusetts,
02110 as the Trust's independent accountant to audit the Trust's books and
review the Trust's tax returns for the Funds' fiscal year ended March 31, 1999.
KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215 were the
independent auditors for the Emerald International Equity Fund (predecessor to
Nations International Value Fund) for the fiscal period December 1, 1997 through
May 15, 1998, and for the fiscal year ended November 30, 1997.
The Annual Report for the fiscal year ended April 30, 1998, is hereby
incorporated by reference in this SAI. The Annual Reports for the Emerald
International Equity Fund (the predecessor to Nations International Value Fund)
for the fiscal period ended May 15, 1998 and for the fiscal year ended November
30, 1997 are also incorporated herein by reference. These Annual Reports will be
sent free of charge with this SAI to any shareholder who requests this SAI.
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SCHEDULE A
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.
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.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those
in higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt
rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
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-1
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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.
Baa - Bonds that are rated Baa are considered medium grade
obligations, I.E., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. 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, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
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.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
A-2
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AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
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 - Indicates 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 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
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
A-3
<PAGE>
requirements, access to capital markets is good. Risk factors are small. D-3
indicates satisfactory liquidity and other protection factors which qualify the
issue as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("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 four 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.
A-4
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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.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
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".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business,
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economic or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1+ When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
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SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each Fund may enter into futures contracts
and options for hedging purposes. Such transactions are described in this
Schedule. During the current fiscal year, each of these Funds intends to limit
its transactions in futures contracts and options so that not more than 5% of
the Fund's net assets are at risk. Furthermore, in no event would any Fund
purchase or sell futures contracts, or related options thereon, for hedging
purposes if, immediately thereafter, the aggregate initial margin that is
required to be posted by the Fund under the rules of the exchange on which the
futures contract (or futures option) is traded, plus any premiums paid by the
Fund on its open futures options positions, exceeds 5% of the Fund's total
assets, after taking into account any unrealized profits and unrealized losses
on the Fund's open contracts and excluding the amount that a futures option is
"in-the-money" at the time of purchase. (An option to buy a futures contract is
"in-the-money" if the value of the contract that is subject to the option
exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into
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a futures contract purchase for the same aggregate amount of the specific type
of financial instrument and the same delivery date. If the price in the sale
exceeds the price in the offsetting purchase, the Fund is paid the difference
and thus realizes a gain. If the offsetting purchase price exceeds the sale
price, the Fund pays the difference and realizes a loss. Similarly, the closing
out of a futures contract purchase is effected by the Fund's entering into a
futures contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association ("GNMA") modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Funds may trade in any futures contract for
which there exists a public market, including, without limitation, the foregoing
instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, E.G.,
shorter-term
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securities whose yields are greater than those available on long-term bonds. The
Fund's basic motivation would be to maintain for a time the income advantage
from investing in the short-term securities; the Fund would be endeavoring at
the same time to eliminate the effect of all or part of an expected increase in
market price of the long-term bonds that the Fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise from 98 to 103. In that case, the
5-point increase in the price that the Fund pays for the long-term bond would be
offset by the 5-point gain realized by closing out the futures contract
Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of
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securities, in the value of the securities to be sold. Conversely, a Fund will
purchase index futures contracts in anticipation of purchases of securities. In
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/
Increase in Purchase Contract
Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
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-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
IF, HOWEVER, THE MARKET MOVED IN THE OPPOSITE DIRECTION, THAT IS, MARKET
VALUE DECREASED AND THE FUND HAD ENTERED INTO AN ANTICIPATORY PURCHASE HEDGE, OR
MARKET VALUE INCREASED AND THE FUND HAD HEDGED ITS STOCK PORTFOLIO, THE RESULTS
OF THE FUND'S TRANSACTIONS IN STOCK INDEX FUTURES WOULD BE AS SET FORTH BELOW.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/
Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/
Decrease in Purchase Contract Loss on Futures =
Price = $2,500 $2,500 Contract
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1 0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
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Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
III. Margin Payments
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable, the Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Adviser may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or gain.
IV. Risks of Transactions in Futures Contracts
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Fund may buy or sell
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fewer futures contracts if the volatility over a particular time period of the
prices of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser. It also is possible that, where a Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance, and the value of securities held by the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
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Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. Depending on the pricing of the option compared to either the futures
contract upon which it is based, or upon the price of the securities being
hedged, an option may or may not be less risky than ownership of the futures
contract or such securities. In general, the market prices of options can be
expected to be more volatile than the market prices on the underlying futures
contract. Compared to the purchase or sale of futures contracts, however, the
purchase of call or put options on futures contracts may frequently involve less
potential risk to a Fund because the maximum amount at risk is the premium paid
for the options (plus transaction costs). Although permitted by their
fundamental investment policies, the Funds do not currently intend to write
future options, and will not do so in the future absent any necessary regulatory
approvals.
ACCOUNTING TREATMENT.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
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SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation ("FHLMC"). FHLMC is a corporate instrumentality of the U.S.
Government and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association ("FNMA") is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
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Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
("VRM"), growing equity mortgages ("GEM"), graduated payment mortgages ("GPM")
and other types where the principal and interest payment procedures vary. VRMs
are mortgages which reset the mortgage's interest rate periodically with changes
in open market interest rates. To the extent that the Fund is actually invested
in VRMs, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRMs. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
AVERAGE LIFE
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice
C-2
<PAGE>
is to assume that prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will have varying
assumptions for average life.
RETURNS ON MORTGAGE-BACKED SECURITIES
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
C-3
<PAGE>
NATIONS INSTITUTIONAL RESERVES
FILE NOS. 33-33144; 811-6030
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
(a) Financial Statements
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements, including:
Portfolio of Investments for April 30, 1998
Statements of Assets and Liabilities for April 30, 1998
Statements of Operations for the year ended April 30, 1998
Statements of Changes in Net Assets for the years ended
April 30, 1998 and April 30, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants, dated June 18, 1998
Included in Part C:
(b) Additional Exhibits
(1)(a) Declaration of Trust, dated January 22, 1990, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
(1)(b) Classification of shares, dated February 5, 1998, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
(2) By-Laws, dated January 22, 1990, is incorporated by
reference to Post-Effective Amendment No. 22 filed on
August 27, 1998.
(3) Not Applicable
(4) Not Applicable
<PAGE>
(5)(a) Investment Advisory Agreement with Nationsbanc Advisors,
Inc. incorporated by reference to Post-Effective Amendment
No. 17
(5)(b) Sub-Advisory Agreement with TradeStreet Investment
Associates, Inc. is incorporated by Reference to
Post-Effective Amendment No. 17
(6) Distribution Agreement with Stephens, Inc., dated May 1,
1994, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(7) Not Applicable
(8) Mutual Fund Custody and Sub-Custody Agreement with
NationsBank of Texas, N.A. as Custodian and The Bank of New
York as Sub-Custodian is incorporated by Reference to
Post-Effective Amendment No. 20
(9)(a) Administration Agreement with Stephens Inc., dated May 1,
1994, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(9)(b) Co-Administration Agreement with The Boston Company
Advisors, Inc., dated May 1, 1994, is incorporated by
reference to Post-Effective Amendment No. 22 filed on
August 27, 1998.
(9)(c) Transfer Agency Agreement with First Data, is incorporated
by reference to Post-Effective Amendment No. 22 filed on
August 27, 1998.
(10) Opinion and Consent of Counsel to be filed by amendment.
(11) Consent of Independent Accountants - PricewaterhouseCoopers
LLP, to be filed by amendment.
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15)(a) Distribution Plan for Liquidity Class Shares, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
(15)(b) Shareholder Servicing Plan for Adviser Class Shares, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
2
<PAGE>
(15)(c) Form of Shareholder Servicing Agreement for Adviser Class
Shares, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(15)(d) Shareholder Servicing Plan for Market Class Shares, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
(15)(e) Form of Shareholder Servicing Agreement for Market Class
Shares, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(15)(f) Distribution Plan for Market Class Shares, is incorporated
by reference to Post-Effective Amendment No. 22 filed on
August 27, 1998.
(15)(g) Form of Brokerage Agreement Incorporated, dated November
18, 1994, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(15)(h) Shareholder Servicing Plan for Liquidity Class Shares, is
incorporated by reference to Post-Effective Amendment No.
22 filed on August 27, 1998.
(15)(h) Shareholder Servicing Plan for Marsico Shares, is
incorporated by reference to Post-Effective Amendment No.
25 filed on April 9, 1999.
(15)(i) Administration Plan for Marsico Shares, is incorporated by
reference to Post-Effective Amendment No. 25 filed on April
9, 1999.
(16) Performance Quotation Computation is incorporated by
reference to Post-Effective Amendment No. 6.
(17) Not Applicable
(18) Plan entered into by Registrant pursuant to Rule 18f-3
under the Investment Company Act of 1940, dated April 12,
1995, is incorporated by reference to Post-Effective
Amendment No. 22 filed on August 27, 1998.
(19) Powers of Attorney for Thomas S. Word, Jr., James Ermer,
William H. Grigg, Charles B. Walker, A. Max Walker, Edmund
L. Benson, Thomas F. Keller and Richard H. Rose, are
incorporated by reference to Post-Effective Amendment No.
10 filed on June 30, 1994.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
3
<PAGE>
Registrant is controlled by its Board of Trustees.
Item 27. INDEMNIFICATION
Article VIII of the Agreement of Declaration of Trust filed as Exhibit
1 to the Registration Statement is incorporated by reference. Indemnification of
Registrant's administrators, principal underwriter, custodian and transfer agent
is provided for, respectively, in the:
1. Administration Agreement with Stephens Inc.;
2. Co-Administration Agreement with First Data Investors Services
Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Custody Agreement with The Bank of New York; and
5. Transfer Agency Agreement with First Data Investor Services Group,
Inc.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
(a) To the knowledge of Registrant, none of the directors or officers
of NationsBanc Advisors, Inc. ("NBAI"), the adviser to the Registrant's
portfolios, or TradeStreet Investment Associates, Inc. ("TradeStreet") the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which
4
<PAGE>
in turn is a wholly owned banking subsidiary of NationsBank Corporation.
Information with respect to each director and officer of the investment adviser
is incorporated by reference to Form ADV filed by NBAI with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940 (file no.
801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form filed by
TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriters:
(a) Stephens Inc., distributor for the Registrant, does not presently
act as investment adviser for any other registered investment companies, but
does act as principal underwriter for Nations Fund Trust, Nations Annuity Trust,
Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations LifeGoal Funds, Inc.,
Overland Express Funds, Inc., Stagecoach Inc., Stagecoach Funds, Inc. and
Stagecoach Trust and is the exclusive placement agent for Master Investment
Trust, Managed Series Investment Trust, Life & Annuity Trust and Master
Investment Portfolio, all of which are registered open-end management investment
companies, and has acted as principal underwriter for the Liberty Term Trust,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and the Managed Balanced Target Maturity Fund, Inc.
closed-end management investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV filed by Stephens
Inc. with the Securities and Exchange Commission pursuant to the Investment
Advisers Act of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records:
(1) NationsBanc Advisors, Inc., One NationsBank Plaza, Charlotte,
North Carolina 28255 (records relating to its function as Investment Adviser).
(2) TradeStreet Investment Associates, Inc., One NationsBank Plaza,
Charlotte, North Carolina 28255 (records relating to its function as
Sub-Investment Adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201
(records relating to its functions as Administrator).
5
<PAGE>
(5) First Data Investor Services Group, Inc., One Exchange Place, 53
State Street, Boston, Massachusetts 02109 (records relating to its functions as
Co-Administrator).
(6) First Data Investor Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as Transfer
Agent).
(8) The Bank of New York, 90 Washington Street, New York, New York
10286 (records relating to its function as Custodian).
Item 31. Management Services
None
Item 32. Undertakings
(a) To call a meeting of Shareholders for the purpose of voting upon
the question of the removal of a Trustee(s) when requested in writing to do so
by the holders of at least 10% of Registrant's outstanding shares and in
connection with each meeting to comply with the provision of Section 16(c) of
the Investment Company Act of 1940 relating to Shareholder communications.
(b) To furnish each prospective person to whom a prospectus will be
delivered with a copy of the Registrant's latest annual report to shareholders,
when such annual report is issued containing information called for by Item 5A
of Form N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Capitol Mutual
Funds is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out this Registration Statement are not binding upon any of the
Trustees, officers, or Shareholders individually but are binding only upon the
assets and property of the Trust.
6
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Little Rock, State of Arkansas on the
3rd day of June, 1999.
NATIONS INSTITUTIONAL RESERVES
By: *
--------------------------
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE
---------- ----- ----
* President and Chairman June 3, 1999
- ----------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and Secretary June 3, 1999
- ----------------------------- (Principal Financial and
(Richard H. Blank, Jr.) Accounting Officer)
* Trustee June 3, 1999
- -----------------------------
(Edmund L. Benson, III)
* Trustee June 3, 1999
- -----------------------------
(James Ermer)
* Trustee June 3, 1999
- -----------------------------
(William H. Grigg)
* Trustee June 3, 1999
- -----------------------------
(Thomas F. Keller)
* Trustee June 3, 1999
- -----------------------------
(Carl E. Mundy, Jr.)
* Trustee June 3, 1999
- -----------------------------
(Charles B. Walker)
* Trustee June 3, 1999
- -----------------------------
(Thomas S. Word)
* Trustee June 3, 1999
- -----------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
-------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
[MORRISON & FOERSTER LETTERHEAD]
June 4, 1999
Writer's Direct Dial Number
202-887-8773
VIA EDGAR
- ---------
Mr. Keith A. Gregory
Securities and Exchange Commission
450 Fifth Street, N.W.
Room 5508
Washington, D.C. 20549-0505
Re: Nations Institutional Reserves' Post-Effective Amendment No. 27
Registration Nos. 33-33144; 811-8982
------------------------------------
Dear Keith:
In connection with the registration of Nations Institutional Reserves
(the "Trust") under the Investment Company Act of 1940 (the "1940 Act") and the
issuance of an indefinite number of its securities under the Securities Act of
1933 (the "1933 Act"), we are transmitting for filing on EDGAR, pursuant to Rule
485(a) of the 1933 Act, the Trust's Post-Effective Amendment No. 27 under the
1933 Act and Amendment No. 28 under the 1940 Act to the Trust's Registration
Statement on Form N-1A.
The Trust is filing this Post-Effective Amendment in order to register
five new shell funds, which are substantially identical to their corresponding
funds in Nations Fund, Inc., Nations Fund Trust, and Nations Fund Portfolios,
Inc.
Thank you for your attention to this matter. If you have any questions
or comments, please do not hesitate to contact me at the above number.
Very truly yours,
/s/ Steven G. Cravath
Steven G. Cravath
Enclosures
cc: Francis E. Dalton
Richard H. Blank, Jr.
Edward Bedard
Arthur Fritz
Kelly J. Simeonides
Robert B. Carroll
Brian F. McNally
Robert M. Kurucza
Marco E. Adelfio
