As filed with the Securities and Exchange Commission
on April 9, 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. 25 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | |
Amendment No. 26 |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
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It is proposed that this filing will become effective (check appropriate box):
<S> <C>
| | Immediately upon filing pursuant to Rule 485(b); or | | on (date) pursuant to Rule 485(b), or
|X| 60 days after filing pursuant to Rule 485(a), or | | on (date) pursuant to Rule 485(a)(1)
| | 75 days after filing pursuant to paragraph (a)(2) | | on (date) pursuant to paragraph (a)(2) of Rule 485
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If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 25 to the Registration
Statement of The Capitol Mutual Funds (d/b/a/ Nations Institutional
Reserves) (the "Trust") is provided in order to register a new shell
class, the Marsico Shares, of Nations Cash Reserves.
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THE CAPITOL MUTUAL FUNDS
D/B/A NATIONS INSTITUTIONAL RESERVES
CROSS REFERENCE SHEET
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PART A
Item No. Prospectus
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1. Cover Page............................................. Cover Page
2. Synopsis .......................................... Expenses Summary
3. Condensed Financial Information........................ Financial Highlights; How Performance Is
Shown
4. General Description of Registrant.................... Cover Page; Objectives; How Objectives
Are Pursued; Organization And History
5. Management of the Fund................................. How The Funds Are Managed
5A. Management's Discussion of Fund Performance......... *
6. Capital Stock and Other Securities................... How To Buy Shares; How The Funds Value
Their Shares; How Dividends And
Distributions Are Made; Tax Information
7. Purchase of Securities Being Offered................... Cover Page; How To Buy Shares
8. Redemption or Repurchase............................... How To Redeem Shares; How To Exchange
Shares
9. Legal Proceedings...................................... Organization And History
PART B
Item No.
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10. Cover Page.......................................... Cover Page
1
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11. Table of Contents..................................... Table of Contents
12. General Information and History....................... The Trust
13. Investment Objectives and Policies.................... Description of Permitted Investments;
Investment Limitations; Securities
Lending
14. Management of the Registrant.......................... Trustees and Officers
15. Control Persons and Principal Holders of Securities... 5% Shareholders
16. Investment Advisory and Other Services................ The Adviser; The
Administrator and Co-Administrator;
Distribution and Shareholder Servicing
Plans; and Custodian and Transfer Agent
17. Brokerage Allocation ................................. Portfolio Transactions
18. Capital Stock and Other Securities.................... Description of Shares
19. Purchase, Redemption and Pricing of Securities
being Offered...................................... Net Asset-Value -- Purchases and
Redemptions; Distributor
20. Tax Status............................................ Taxes
19. Underwriters.......................................... Distribution and Shareholder Servicing
Plans
20. Calculation of Performance Data....................... Performance Information
21. Financial Statements.................................. Experts and Financial Information
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PART C
Item No.
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Information required to
be in Part C is set forth
under the appropriate
Item, so numbered, in
Part C of this document.
3
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Prospectus
Marsico Shares
June 9, 1999
This Prospectus describes NATIONS CASH RESERVES (the "Fund") of Nations
Institutional Reserves, an open-end management investment company in the
Nations Funds Family ("Nations Funds" or "Nations Funds Family"). This
Prospectus describes one class of shares of the Fund -- Marsico Shares. The
Marsico Shares are available only to investors and prospective investors of the
portfolios of The Marsico Investment Fund (currently consisting of Marsico
Focus Fund and Marsico Growth & Income Fund) (hereinafter, the "Marsico
Funds").
THE FUND SEEKS TO MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser of Marsico Shares should consider before investing.
Investors should read this Prospectus and retain it for future reference.
Additional information about Nations Institutional Reserves is contained in a
separate Statement of Additional Information (the "SAI"), that has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request without charge by writing or calling Nations Funds at its address or
telephone number shown below. The SAI for Nations Funds, dated June 9, 1999, is
incorporated by reference in its entirety into this Prospectus. The SEC
maintains a Web site (http://www.sec.gov) that contains the SAI, material
incorporated by reference in this Prospectus and other information regarding
registrants that file electronically with the SEC. ALTHOUGH THE CLASS OF SHARES
DESCRIBED IN THIS PROSPECTUS IS CALLED MARSICO SHARES, MARSICO CAPITAL
MANAGEMENT, LLC IS NOT THE INVESTMENT ADVISER OR INVESTMENT SUB-ADVISER TO
THESE SHARES. NationsBanc Advisors, Inc. ("NBAI") is the investment adviser and
TradeStreet Investment Associates, Inc. ("TradeStreet") is the investment
sub-adviser to all classes of shares of the Fund. As used herein the term
"Adviser" shall mean NBAI and/or TradeStreet as the context may require. See
"How The Fund Is Managed."
SHARES OF NATIONS FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR ISSUED,
ENDORSED OR GUARANTEED BY, NATIONSBANK, N.A. ("NATIONSBANK"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BANK OF AMERICA") OR ANY OF THEIR
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE SERVICES TO NATIONS FUNDS,
FOR WHICH THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT AFFILIATED WITH
NATIONSBANK, IS THE SPONSOR AND ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Nations Cash Reserves
For Fund information call your Servicing Agent at:
1-888-860-8686
Nations Funds
c/o Stephens Inc.
One Bank of America
Plaza 33rd Floor
Charlotte, NC 28255
[NATIONS FUNDS LOGO APPEARS HERE]
MARSICO-6/99
<PAGE>
Table Of Contents
About The Prospectus Summary 3
Fund ---------------------------------------------------
Expenses Summary 4
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Objective 5
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How The Objective Is Pursued 5
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How Performance Is Shown 8
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How the Fund Is Managed 9
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Organization And History 11
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About Your How To Buy Shares 12
Investment ---------------------------------------------------
How To Redeem Shares 14
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How To Exchange Shares 15
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Shareholder Servicing Arrangements 16
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How The Fund Values Its Shares 18
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How Dividends And Distributions Are Made;
Tax Information 19
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Appendix A -- Portfolio Securities 20
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Appendix B -- Description Of Ratings 24
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUNDS OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
NATIONS FUNDS OR BY THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
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About The Fund
Prospectus Summary
o TYPE OF COMPANY: Open-end management investment company.
o INVESTMENT OBJECTIVE AND POLICIES:
o Nations Cash Reserves' investment objective is to preserve principal value
and maintain a high degree of liquidity while providing current income.
o INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment management services to more than
60 investment company portfolios in the Nations Funds Family. TradeStreet
Investment Associates, Inc., an affiliate of NBAI, provides investment
sub-advisory services to the Fund. For more information about the investment
adviser and investment sub-adviser to the Nations Funds, see "How The Fund Is
Managed."
o DIVIDENDS AND DISTRIBUTIONS: The Fund declares dividends daily and pays them
monthly. The Fund's net realized capital gains, including net short-term
capital gains, are distributed at least annually.
o RISK FACTORS: Although NBAI, together with the sub-adviser, seek to achieve
the investment objective of the Fund, there is no assurance that they will be
able to do so. Investments in the Fund are not insured against loss of
principal. Although the Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so. For a
discussion of these and other factors, see "How The Objective Is Pursued --
Restraints on Investments by the Fund" and "Appendix A."
o MINIMUM PURCHASE: The minimum initial investment in Marisco Shares is $1,000
per record holder except that the minimum initial investment is: $500 for
Individual Retirement Plan ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating in the Systematic Investment Plan.
There is no minimum investment amount for investments by certain 401(k) and
employee pension plans or salary reduction. The minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment Plan.
See "How To Buy Shares."
3
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Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize shareholder transaction and operating expenses for
Marsico Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
NATIONS FUNDS MARSICO SHARES
Nations
Cash
Shareholder Transaction Expenses Reserves
Sales Load Imposed on Purchases None
- --------------------------------------------------------------------------------
Deferred Sales Charge None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees (After Fee Waivers) %
- --------------------------------------------------------------------------------
Other Expenses (After Expense Reimbursements) %
- --------------------------------------------------------------------------------
Shareholder Servicing Fees %
- --------------------------------------------------------------------------------
Total Operating Expenses (Absent Fee Waivers and Expense Reimbursements) %
Example:
You would pay the following expenses on a $1,000 investment in Marsico Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
Nations
Cash
Reserves
1 Year $
- --------------------------------------------------------------------------------
3 Years $
- --------------------------------------------------------------------------------
5 Years $
- --------------------------------------------------------------------------------
10 Years $
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Marsico Shares will bear either directly or indirectly. The "Other Expenses"
figure contained in the above table is based on estimates. There is no
assurance that any fee waivers and/or reimbursements will continue. In
particular, to the extent Other Expenses are less than those shown, waivers
and/or reimbursements of Management Fees, if any, may decrease. Shareholders
will be notified of any decrease that materially increases Total Operating
Expenses. If fee waivers and/or reimbursements are decreased or discontinued,
the amounts contained in the "Example" above may increase. For more complete
descriptions of the Fund's operating expenses, see "How The Fund Is Managed."
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Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" would have been %, % and %,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST
OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Objective
The Fund endeavors to achieve its investment objective by investing in a
diversified portfolio of high quality money market instruments with remaining
maturities of 397 days or less from the date of purchase. Securities subject to
repurchase agreements may have longer maturities.
Nations Cash Reserves: Nations Cash Reserves' investment objective is to
preserve principal value and maintain a high degree of liquidity while
providing current income.
Although the Adviser seeks to achieve the investment objective of the Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. Investments in the Fund are not insured against loss of principal.
How The Objective Is Pursued
Nations Cash Reserves
In pursuing its investment objective, the Fund will invest in obligations
denominated in U.S. dollars consisting of: (i) commercial paper; (ii)
obligations (including certificates of deposit, time deposits, and bankers'
acceptances) of thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and London branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $1 billion or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of issuers of commercial paper whose commercial paper is
eligible for purchase by the Fund; (iv) high quality short-term taxable
obligations issued by state and local governments, their agencies and
instrumentalities; (v) direct obligations issued by the U.S. Treasury, STRIPS
and obligations the principal and interest of which are backed by the full
faith and credit of the United States Government; and (vi) repurchase
agreements and reverse repurchase agreements involving any of the foregoing
obligations. The Fund also may invest in guaranteed investment contracts and in
securities issued by other investment companies, consistent with its investment
objective and policies. The short-term obligations that may be purchased by the
Fund include instruments issued by trusts, partnerships or other special
purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers.
5
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The Fund reserves the right to concentrate its investments in U.S. dollar
denominated obligations of U.S. banks, foreign branches of U.S. banks and U.S.
branches of foreign banks. Concentration in this context means the investment
of more than 25% of the Fund's assets in such obligations.
For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.
Nations Cash Reserves is listed on the National Association of Insurance
Commissioners' Approved List of Class 1 Money Market Mutual Funds.
Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in
first tier securities (as defined below). For more information concerning these
instruments, see "Appendix A."
Restraints on Investments by The Fund: In order for the Fund to value its
investments on the basis of amortized cost (see "How The Fund Values Its
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the 1940 Act, some of which are described below. The Fund is limited to
acquiring obligations with a remaining maturity of 397 days or less, or
obligations with greater maturities, provided such obligations are subject to
demand features or resets which are less than 397 days, and to maintaining a
dollar-weighted average portfolio maturity of 90 days or less. Quality
requirements generally limit investments to U.S. dollar denominated instruments
determined to present minimal credit risks and that, at the time of
acquisition, are rated in the first or second rating categories (known as
"first tier" and "second tier" securities, respectively) by the required number
of nationally recognized statistical rating organizations ("NRSROs") (at least
two or, if only one NRSRO has rated the security, that one NRSRO) or, if
unrated by any NRSRO, are (i) comparable in priority and security to a class of
short-term securities of the same issuer that has the required rating, or (ii)
determined to be comparable in quality to securities having the required
rating. The diversification requirements provide generally that the Fund may
not at the time of acquisition invest more than 5% of its assets in securities
of any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
no more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements,
other than minimal credit risk. In the event that the Fund's investment
restrictions or permissible investments are more restrictive than the
requirements of Rule 2a-7, the Fund's own restrictions will govern.
Year 2000 Issue: Many computer programs employed throughout the world use two
digits to identify the
6
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year. Unless modified, these programs may not correctly handle the change from
"99" to "00" on January 1, 2000, and may not be able to perform necessary
functions. Any failure to adapt these programs in time could hamper the Fund's
operations. The Fund's principal service providers have advised the Fund that
they have been actively working on implementing necessary changes to their
systems, and that they expect that their systems will be adapted in time,
although there can be no assurance of success. Because the Year 2000 issue
affects virtually all organizations, the companies or governmental entities in
which the Fund invests could be adversely impacted by the Year 2000 issue,
although the extent of such impact cannot be predicted. To the extent the
impact on a portfolio holding is negative, the Fund's return could be adversely
affected.
Investment Limitations: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed without the affirmative vote of the holders of a
majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase securities of any issuer (except U.S. Government Obligations), if
as a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of the Fund's
assets.
2. Purchase any securities which would cause more than 25% of the total assets
of the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in U.S. Government Obligations .
3. Make loans, except that (a) the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) the Fund may
enter into repurchase agreements and non-negotiable time deposits, provided
that repurchase agreements and non-negotiable time deposits maturing in more
than seven days, illiquid restricted securities and other securities which are
not readily marketable do not exceed, in the aggregate, 10% of the Fund's total
assets; and (c) the Fund may engage in securities lending as described in this
Prospectus and in the SAI.
The foregoing percentages will apply at the time of the purchase of a security.
The investment objective and certain investment policies of the Fund are
fundamental policies of the Fund. It is also a fundamental policy of the Fund
to seek to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Fund will be able to maintain a constant net asset value of
$1.00 per share.
Fundamental policies cannot be changed with respect to the Fund without the
consent of the holders of a majority of the Fund's outstanding shares. The term
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
7
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How Performance Is Shown
From time to time, the Fund may advertise the "yield" and "effective yield" of
a class of shares. YIELD AND EFFECTIVE YIELD FIGURES ARE BASED ON HISTORICAL
DATA AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
The "yield" of a class of shares of the Fund refers to the income generated by
an investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares of the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with such Fund's investment objective and policies. These factors
should be considered when comparing a Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
Any fees charged by selling and/or servicing agents to their customers'
accounts for automatic investment or other cash management services will not be
included in calculations of yield.
In addition to Marsico Shares, the Fund offers Adviser Class, Capital Class,
Daily Class, Investor Class, Liquidity Class, Market Class, Service Class and
Trust Class Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of the Fund's shares. The
Fund's annual report contains additional performance information and is
available upon request without charge from the Fund's distributor or the
Servicing Agent (defined below). To obtain additional information regarding the
Fund's other classes of shares which may be available to you or to obtain the
Fund's annual report, call Nations Funds at the toll-free number indicated on
the cover of this Prospectus.
8
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How The Fund Is Managed
The business and affairs of Nations Institutional Reserves are managed under
the direction of its Board of Trustees. The Trust's SAI contains the names of
and general background information concerning each Trustee of Nations
Institutional Reserves.
As described below, the Fund is advised by NBAI which is responsible for the
overall management and supervision of the investment management of the Fund.
The Fund also is sub-advised by a separate investment sub-adviser, which as a
general matter is responsible for the day-to-day investment decisions for the
Fund.
Nations Funds and the Adviser have adopted codes of ethics which contain
policies on personal securities transactions by "access persons," including
portfolio managers and investment analysts. These policies substantially comply
in all material respects with the recommendations set forth in the May 9, 1994
Report of the Advisory Group on Personal Investing of the Investment Company
Institute.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of BankAmerica Corporation, a bank holding
company organized as a Delaware corporation. NBAI has its principal offices at
One Bank of America Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One Bank of
America Plaza, Charlotte, North Carolina 28255, serves as investment
sub-adviser to the Fund. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to
individuals, corporations and institutions.
Subject to the general supervision of Nations Institutional Reserves' Board of
Trustees, and in accordance with the Fund's investment policies, the Adviser
formulates guidelines and lists of approved investments for the Fund, makes
decisions with respect to and places orders for the Fund's purchases and sales
of portfolio securities and maintains records relating to such purchases and
sales. From time to time, to the extent consistent with its investment
objective, policies and restrictions, the Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to an investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of .30% of the average daily net assets
of the Fund.
For the services provided pursuant to an investment sub-advisory agreement,
NBAI will pay TradeStreet sub-advisory fees, computed daily and paid monthly,
at the annual rate of .033% of the average daily net assets of the Fund.
From time to time, NBAI (and/or TradeStreet or the co-administrators of the
Fund) may voluntarily waive or reimburse advisory fees and/or expenses payable
by the Fund. NBAI, TradeStreet and the co-administrators each reserve the
right, in its sole discretion, to terminate any voluntary
9
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fee waivers and/or expense reimbursements at any time. In addition, the Adviser
may from time to time compensate banks, broker/dealers and other financial
institutions that have entered into a shareholder servicing agreement with the
Fund, for providing certain services to customers.
For the fiscal year ended April 30, 1998, after waivers, Nations Institutional
Reserves paid NBAI under the investment advisory agreement, advisory fees at
the rate of .15% of the Fund's average daily net assets.
For the fiscal year ended April 30, 1998, after waivers, NBAI paid TradeStreet
under the investment sub-advisory agreements, sub-advisory fees at the rate of
.033% of the Fund's average daily net assets.
The Taxable Money Market Management Team of TradeStreet is responsible for the
day-to-day management of Nations Cash Reserves.
Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the investment advisory
agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as co-administrator of
the Fund. NBAI serves as co-administrator of the Fund with Stephens. Under the
co-administration arrangements, Stephens and NBAI provide various
administrative, accounting and corporate secretarial services to the Fund.
Stephens and NBAI shall be entitled to receive a combined fee at the annual
rate of .10% of the Fund's average daily net assets, as well as certain out-
of-pocket expenses.
The Bank of New York ("BNY"), located at 90 Washington Street, New York, New
York 10286, serves as sub-administrator for the Fund. Under the
sub-administration arrangements, BNY assists NBAI and Stephens in performing
certain administrative and accounting services.
For the fiscal year ended April 30, 1998, after waivers, Nations Institutional
Reserves paid its administrators combined fees at the rate of .01% of the
Fund's average daily net assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer. Nations Funds
has entered into a distribution agreement with Stephens which provides that
Stephens has the exclusive right to distribute shares of the Fund. Stephens may
pay service fees or commissions to selling agents that assist customers in pur-
10
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chasing Marsico Shares of the Fund. See "Shareholder Servicing Arrangements."
BNY (the "Custodian") also provides custodial services for the assets of the
Fund. In return for providing custodial services to the Nations Funds Family,
BNY is entitled to receive, in addition to out of pocket expenses, fees at the
rate of (i) 3/4 of one basis point per annum on the aggregate net assets of
all Nations Funds' non-money market funds up to $10 billion; and (ii) 1/2 of
one basis point on the excess, including all Nations Funds' money market funds.
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, with principal offices at One Exchange
Place, Boston, Massachusetts 02109, serves as transfer agent (the "Transfer
Agent") for the Fund's shares.
PricewaterhouseCoopers LLP serves as independent accountant to Nations Funds.
Their address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of the Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, Stephens and First Data; taxes;
interest; fees (including fees paid to Nations Funds' Trustees and officers);
federal and state securities registration and qualification fees; brokerage
fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings;
other expenses which are not expressly assumed by the Adviser, Stephens or
First Data under their respective agreements with Nations Funds; and any
extraordinary expenses. Any general expenses of Nations Institutional Reserves
that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Institutional Reserves or in such
other manner as the Board of Trustees deems appropriate.
Organization And History
The Fund is member of the Nations Funds Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc., Nations Institutional
Reserves, Nations Annuity Trust, Nations LifeGoal Funds, Inc. and Nations
Master Investment Trust. The Nations Funds Family currently has more than 70
distinct investment portfolios and total assets in excess of $60 billion.
Nations Institutional Reserves: Nations Institutional Reserves (formerly known
as The Capitol Mutual Funds), is an open-end management investment company
established as a Massachusetts business trust under an Agreement and Declaration
of Trust dated January 22, 1990. The Agreement and Declaration of Trust permits
Nations Institutional Reserves to offer separate series of units of beneficial
interest ("shares") and different classes of each series. The Fund
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is a series of Nations Institutional Reserves. Except for differences between
classes of the Fund pertaining to distribution and shareholder servicing
arrangements, each share of the Fund represents an equal proportionate interest
in the Fund. This Prospectus relates only to the Marsico Shares of the Fund. To
obtain additional information regarding the Fund's other classes of shares
which may be available to you, contact Nations Funds at 1-800-626-2275.
Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, Nations Institutional Reserves is not required to
hold annual meetings but approval will be sought for certain changes in the
operation of Nations Institutional Reserves and for the election of Trustees
under certain circumstances. In addition, a Trustee may be removed by the
remaining Trustees or by shareholders at a special meeting called upon written
request of shareholders owning at least 10% of the outstanding shares of
Nations Institutional Reserves. In the event that such a meeting is requested,
Nations Institutional Reserves will provide appropriate assistance and
information to the shareholders requesting the meeting.
As of June 9, 1999, NationsBank, Bank of America and their affiliates possessed
or shared power to dispose or vote with respect to more than 25% of the
outstanding shares of Nations Institutional Reserves and therefore could be
considered to be a controlling person of Nations Institutional Reserves for
purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series of shares over which NationsBank and its
affiliates possessed or shared power to dispose or vote as of a certain date,
see the SAI.
The management and affairs of Nations Institutional Reserves are supervised by
the Trustees under the laws of the Commonwealth of Massachusetts. The Trustees
have approved contracts under which, as described above, certain companies
provide essential management services to Nations Institutional Reserves.
Further information regarding individual Trustees may be found in the SAI.
About Your Investment
How To Buy Shares
The Marsico Shares are available only to investors and prospective investors of
the Marsico Funds. Shares are available only through Sunstone Financial Group,
Inc., the transfer agent of the Marsico Funds (the "Servicing Agent"), in
accordance with procedures and particular account requirements which may be
different than those discussed below. Questions about those procedures, account
requirements and your account should be directed to the Servicing Agent at
1-888-860-8686. The following procedures are applicable only to purchases by
the Servicing Agent.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
o $500 for IRA investors;
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o $250 for non-working spousal IRAs; and
o $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified
employee pension plans ("SAR-SEPs"), Savings Incentives Method Plans for
Employees ("SIMPLE IRAs"), salary reduction-Individual Retirement Accounts
("SAR-IRAs") or similar types of accounts. However, the assets of such plans
must reach an asset value of $1,000 ($500 for SEPs, SAR-SEPs, SIMPLE IRAs, and
SAR-IRAs) within one year of the account open date. If the assets of such plans
do not reach the minimum asset size within one year, Nations Funds reserves the
right to redeem the shares held by such plans on 60 days' written notice. The
minimum subsequent investment is $100, except for investments pursuant to the
Systematic Investment Plan described below.
Shares acquired through an exchange of shares of the Marsico Funds must have a
current value of at least $1,000. No sales load or exchange fee is imposed upon
the purchase of Marsico Shares of the Fund through an exchange. Purchases may
be effected only on days on which the Federal Reserve Bank of New York is open
for business (a "Business Day").
The Servicing Agent provides various shareholder services for its customers
("Customers") who own Marsico Shares. From time to time the Servicing Agent,
Stephens, and Nations Funds may agree to voluntarily reduce the fees payable
for shareholder services. See "Shareholder Servicing Arrangements."
Nations Funds and Stephens reserve the right to reject any purchase order. The
issuance of Marsico Shares is recorded on the books of the Fund, and share
certificates are not issued.
Effective Time of Purchases: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or the Transfer Agent. A purchase order must be received by
Stephens or the Transfer Agent by 3:00 p.m., Eastern time. A purchase order
received after such time will not be accepted; notice thereof will be given to
the Servicing Agent or investor placing the order, and any funds received will
be returned promptly to the Servicing Agent or investor. If federal funds are
not available by 4:00 p.m., Eastern time, the order will be canceled. Marsico
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or the Transfer Agent.
The Servicing Agent is responsible for transmitting orders for purchases by its
Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Funds.
Systematic Investment Plan: Under the Fund's Systematic Investment Plan ("SIP"),
a shareholder may automatically purchase Marsico Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her account. Transfers will occur
on or about the 15th and/or the last day of the applicable month.
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Subject to certain exceptions, the systematic investment amount may be in any
amount from $50 to $100,000. For more information concerning the SIP, contact
the Servicing Agent.
Telephone Transactions: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear
the risk of any resulting losses from a telephone transaction. The Servicing
Agent will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and if the Servicing Agent and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. The Servicing Agent
requires a form of personal identification prior to acting upon instructions
received by telephone and provides written confirmation to shareholders of each
telephone share transaction. In addition, the Servicing Agent reserves the
right to record all telephone conversations. Shareholders should be aware that
during periods of significant economic or market change, telephone transactions
may be difficult to complete.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing to the
Servicing Agent. Redemption orders are effected at the net asset value per
share next determined after receipt of the order by Stephens or the Transfer
Agent, as the case may be. The Servicing Agent is responsible for transmitting
redemption orders to Stephens or the Transfer Agent and for crediting its
Customers' accounts with the redemption proceeds on a timely basis. No charge
for wiring redemption payments is imposed by Nations Funds.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time and payment will normally be wired the same day to the Servicing Agent.
Nations Funds reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption order if, in the judgment of the
Adviser, an earlier payment could adversely impact the Fund. However,
redemption proceeds for shares purchased by 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. Redemption
orders will not be accepted by Stephens or the Transfer Agent after 3:00 p.m.,
Eastern time for execution on that Business Day.
Nations Funds may redeem a shareholder's Marsico Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of
redemptions, and the shareholder does not increase the balance to at least $500
on 60 days' written notice. Share balances also may be
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redeemed at the direction of the Servicing Agent pursuant to arrangements
between the Servicing Agent and its Customers. Nations Funds also may redeem
shares involuntarily or make payment for redemption in readily marketable
securities or other property under certain circumstances in accordance with the
1940 Act.
Prior to effecting a redemption of Marsico Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal
office. All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Funds previously have been made.
Nations Funds may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
Automatic Withdrawal Plan: An Automatic Withdrawal Plan ("AWP") may be
established by a shareholder of the Fund if the value of the Marsico Shares in
his/her account (valued at the net asset value at the time of the establishment
of the AWP) equals $10,000 or more. Shareholders who elect to establish an AWP
may receive a monthly, quarterly or annual check or automatic transfer to a
checking or savings account in a stated amount of not less than $25 on or about
the 10th or 25th day of the applicable month of withdrawal. Marsico Shares will
be redeemed as necessary to meet withdrawal payments. Withdrawals will reduce
principal and may eventually deplete the shareholder's account. If a
shareholder desires to establish an AWP after opening an account, a signature
guarantee will be required. An AWP may be terminated by a shareholder on 30
days' written notice to the Servicing Agent or by Nations Funds at any time.
How To Exchange Shares
The exchange feature enables a shareholder of the Marsico Funds to exchange
such shares for Marsico Shares of the Fund or enables a shareholder of Marsico
Shares of the Fund to exchange such shares for shares of the Marsico Funds,
when that shareholder believes that a shift between funds is an appropriate
investment decision. An exchange of shares of the Marsico Funds for Marsico
Shares of the Fund or an exchange of Marsico Shares of the Fund for shares of a
Marsico Fund is made on the basis of the next calculated net asset value per
share of each Fund after the exchange order is received.
The Fund or the Marsico Funds may limit the number of times this exchange
feature may be exercised by a shareholder within a specified period of time.
Also, the exchange feature may be terminated or revised at any time by Nations
Funds upon such notice as may be required by applicable regulatory agencies
(presently 60 days for termination or material revision), provided that the
exchange feature may be terminated or materially revised without notice under
certain unusual circumstances.
The current prospectus for the Marsico Funds describes their investment
objectives and policies, and shareholders should obtain a copy and
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examine it carefully before investing. Exchanges are subject to the minimum
investment requirement and any other conditions imposed by the Fund. In the
case of any shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for Federal income tax purposes the same as a
redemption of shares, on which the shareholder may realize a capital gain or
loss. However, the ability to deduct capital losses on an exchange may be
limited in situations where there is an exchange of shares within 90 days after
the shares are purchased.
Marsico Shares acquired through an exchange must have a current value of at
least $1,000 (except for exchanges through the Automatic Exchange Feature,
which is described below). Nations Funds and Stephens reserve the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange.
Marsico Shares may be exchanged by directing a request to the Servicing Agent.
During periods of significant economic or market change, telephone exchanges
may be difficult to complete. In such event, shares may be exchanged by mailing
your request to the Servicing Agent. Investors should consult the Servicing
Agent for further information regarding exchanges. Your exchange feature may be
governed by your account agreement with the Servicing Agent.
Automatic Exchange Feature: Under the Fund's Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a periodic basis. A
shareholder may direct proceeds to be exchanged from a Marsico Fund to Marsico
Shares of the Fund or from Marsico Shares of the Fund to shares of a Marsico
Fund as allowed by the applicable exchange rules within the Prospectus.
Exchanges will occur in accordance with procedures established with the
Servicing Agent. The shareholder must have an existing position in both Funds in
order to establish the AEF. This feature may be established by directing a
request to the Servicing Agent by telephone or in writing. For additional
information, a shareholder should contact the Servicing Agent at 1-888-860-8686.
Shareholder Servicing Arrangements
Administration Plan: The Fund has adopted an Administration Plan (the
"Administration Plan") pursuant to which financial institutions
("Administration Agents") provide administration services to the Servicing
Agent whose Customers from time to time beneficially own Marsico Shares.
Payments under the Administration Plan are calculated daily and paid monthly at
a rate or rates set from time to time by the Fund, provided that the annual
rate may not exceed .10% of the average daily net asset value of the Marsico
Shares beneficially owned by Customers of the Servicing Agent with whom the
Administration Agents have a ser-
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vicing relationship. Holders of Marsico Shares will bear all fees paid to
Administration Agents under the Administration Plan.
Such administration services supplement the services provided by the Servicing
Agent to shareholders of record. The administration services provided by
Administration Agents may include: (i) processing purchase and redemption
requests for Marsico Shares from the Servicing Agent and transmitting promptly
net purchase and redemption orders to Stephens or the Transfer Agent; (ii)
providing information periodically to the Servicing Agent showing its
Customers' positions in Marsico Shares; (iii) providing sub-accounting with
respect to Marsico Shares beneficially owned by Customers of the Servicing
Agent or the information necessary for sub-accounting; (iv) 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 the Servicing Agent; (v) forwarding to the Servicing Agent proxy
statements and proxies containing any proposals regarding the Administration
Agreement; (vi) preparing annual, semi-annual and other similar reports
relating to the Marsico Shares; and (vii) providing such other similar services
as may be reasonable requested.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid under the Administration Plan.
Shareholder Servicing Plan: The Fund's shareholder servicing plan ("Servicing
Plan") permits the Fund to compensate the Servicing Agent for certain
shareholder support services that are provided by the Servicing Agent to its
Customers that own Marsico Shares. Payments under the Servicing Plan will be
calculated daily and paid monthly at a rate set from time to time by the Board
of Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of the Fund's Marsico Shares. The shareholder services
provided by the Servicing Agent may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from the Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Marsico Shares; providing sub-accounting with respect to Marsico
Shares beneficially owned by Customers or the information necessary for
sub-accounting; responding to inquiries from Customers concerning their
investment in Marsico Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Funds may suspend or reduce payments under the Administration or
Servicing Plan at any time, and payments are subject to the continuation of the
Fund's Administration or Servicing Plan described above and the terms of the
Administration or Servicing Agreements. See the SAI for more details on the
Administration and Servicing Plan.
Nations Funds understands that Institutions or the Servicing Agent may charge
fees to their Customers who are the owners of Marsico Shares for various
services provided in connection with a Customer's account. These
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fees would be in addition to any amounts received by an Institution under its
Shareholder Administration Agreement or the Servicing Agent under its
Shareholder Servicing Agreement with Nations Funds. The Shareholder
Administration Agreement and Shareholder Servicing Agreement require
Institutions and the Servicing Agent to disclose to their Customers any
compensation payable to Institutions or the Servicing Agent by Stephens or
Nations Funds and any other compensation payable by the Customers for various
services provided in connection with their accounts. Customers of the Servicing
Agent should read this Prospectus in light of the terms governing their
accounts with the Servicing Agent.
The Adviser may also pay out of its own assets amounts to Stephens or other
broker/dealers in connection with the provision of administrative and/or
distribution related services to shareholders.
In addition, Stephens may, from time to time, at its expense or as an expense
for which it may be reimbursed, pay a bonus or other consideration or incentive
to agents who sell a minimum dollar amount of shares of the Fund during a
specified period of time. Stephens may also, from time to time, pay additional
consideration to agents not to exceed .50% of the offering price per share on
all sales of Marsico Shares to retirement plans as an expense of Stephens or
for which Stephens may be reimbursed. Any such additional consideration or
incentive program may be terminated at any time by Stephens.
Stephens has also established a non-cash compensation program, pursuant to
which broker/dealers or financial institutions that sell shares of the Fund may
earn additional compensation in the form of trips to sales seminars or vacation
destinations, tickets to sporting events, theater or other entertainment,
opportunities to participate in golf or other outings and gift certificates for
meals or merchandise. This non-cash compensation program may be amended or
terminated at any time by Stephens.
How The Fund Values Its Shares
The net asset value of a Marsico Share is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares are valued as of 3:00 p.m., Eastern time each Business Day.
Currently, the days on which the Federal Reserve Bank of New York is closed
(other than weekends) are: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day and Christmas Day.
The assets of the Fund are valued based upon the amortized cost method.
Although Nations Funds seeks to maintain the net asset value per share of the
Fund at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are Made; Tax Information
Dividends and Distributions: Dividends from net investment income for the Fund
are declared daily at 3:00 p.m., Eastern time on the day of declaration.
Marsico Shares begin earning dividends on the day the purchase order is
executed and continue earning dividends through and including the day before
the redemption order is executed (E.G., the settlement date). Dividends are
paid within five Business Days after the end of each month. Dividends are paid
in the form of additional Marsico Shares of the Fund unless the Customer has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Your dividend election may be governed by your account agreement
with the Servicing Agent. Dividends are paid in cash within five Business Days
after a shareholder's complete redemption of his/her Marsico Shares in the
Fund. To the extent that there are any net realized short-term capital gains,
they will be paid at least annually.
The Fund's net investment income available for distribution to the holders of
Marsico Shares will be reduced by the amount of shareholder servicing fees paid
to the Servicing Agent. The Fund's net investment income available for
distribution to the holders of Marsico Shares will be reduced by the amount of
retail transfer agency fees allocated to Marsico Shares.
Tax Information: The Fund intends to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves the Fund of liability for Federal income
tax on amounts distributed in accordance with the Code.
The Fund intends to distribute substantially all of its net investment income
(including, for this purpose net short-term capital gains) each taxable year.
Distributions by the Fund will be taxable as ordinary income to shareholders of
such income generally whether such income is received in cash or reinvested in
additional shares. These distributions will not qualify for the dividends
received deduction for corporate shareholders.
The Fund does not expect to realize any long-term capital gains (generally, the
excess of net long-term capital gain over net short-term capital loss), and
therefore, does not expect to distribute any capital gain distributions.
Each year, shareholders will be notified as to the amount and Federal tax
status of all dividends (and capital gains, if applicable) paid during the
prior year. Such dividends (and capital gains) may be subject to state and
local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by shareholders and paid by the Fund on December 31 of such
year in the event such dividends are actually paid during January of the
following year.
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Federal law requires Nations Funds to withhold 31% from any dividends paid by
Nations Funds and/or redemptions (including exchanges and redemptions in-kind)
that occur in certain shareholder accounts if the shareholder has not properly
furnished a certified correct Taxpayer Identification Number and has not
certified that withholding does not apply, or if the Internal Revenue Service
has notified Nations Funds that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes.
Federal law also requires the Fund to withhold tax on dividends paid to certain
foreign shareholders.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to foreign, state and local taxes. Further
tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How The Objective Is Pursued" section of this
Prospectus identifies the Fund's permissible investments, and the SAI contains
more information concerning such investments.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
Borrowings: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Fund may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Fund's total assets must be repaid prior to the purchase of portfolio
securities. Pursuant to line of credit arrangements with BNY, the Fund may
borrow primarily for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely disposition of
securities.
Reverse repurchase agreements may be considered to be borrowings. When the Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Fund
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may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements. Generally, the effect of such a transaction
is that the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are only advantageous if the interest cost to the
Fund of the reverse repurchase transaction is less than the cost of obtaining
the cash otherwise.
At the time the Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian bank in which it will
maintain cash, U.S. Government securities ("U.S. Government Securities"), or
other liquid high grade debt obligations equal in value to its obligations in
respect of reverse repurchase agreements. Reverse repurchase agreements involve
the risk that the market value of the securities the Fund is obligated to
repurchase under the agreement may decline below the repurchase price. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities. In addition, there is a risk of delay in receiving collateral or
securities or in repurchasing the securities covered by the reverse repurchase
agreement or even of a loss of rights in the collateral or securities in the
event the buyer of the securities under the reverse repurchase agreement files
for bankruptcy or becomes insolvent. The Fund only enters into reverse
repurchase agreements (and repurchase agreements) with counterparties that are
deemed by the Adviser to be creditworthy. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Fund does not establish and maintain a segregated account
(as described above). Under the requirements of the 1940 Act, the Fund is
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Fund's asset coverage and other factors at the time of a reverse
repurchase, the Fund may not establish a segregated account when the Adviser
believes it is not in the best interests of the Fund to do so. In this case,
such reverse repurchase agreements will be considered borrowings subject to the
asset coverage described above.
Currently, the Fund has entered into an arrangement whereby it reinvests the
proceeds of a reverse repurchase agreement in a tri-party repurchase agreement
and receives the net interest rate differential.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 10% of the value of its net assets in securities that are illiquid.
Repurchase agreements, time deposits and GICs that do not provide for payment
to the Fund within seven days after notice, and illiquid restricted securities,
are subject to the limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but which can be sold to "qualified
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institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
are issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Fund's Board of
Directors or the Adviser, acting under guidelines approved and monitored by the
Fund's Board, after considering trading activity, availability of reliable
price information and other relevant information, that an adequate trading
market exists for that security. To the extent that, for a period of time,
qualified institutional or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, the level of illiquidity of a
Fund holding such securities may increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
The Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. The Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of the Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. The Fund will not sell interest rate caps or
floors that it does not own.
Money Market Instruments: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days. Money market instruments may include,
among other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements
and municipal securities. Such instruments are described in this Appendix A.
Other Investment Companies: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the Fund would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory
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fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. Pursuant to
an exemptive order issued by the SEC, the Nations Funds' non-money market funds
may purchase shares of Nations Funds' money market funds.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can
be liquidated on the open market. Repurchase agreements with a maturity of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Funds.
Securities Lending: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or
in recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be creditworthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 33% of the
value of its total assets, which may include cash collateral received for
securities loans. Cash collateral received by a Nations Fund may be invested in
a Nations Funds' money market fund.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Assocation; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is not
obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due
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to fluctuations in market interest rates. As a general matter, the value of
debt instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. An instrument with a
demand period exceeding seven days may be considered illiquid if there is no
secondary market for such security.
When-Issued, Delayed Delivery And Forward Commitment Securities: The purchase
of new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities take
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate
and municipal bonds:
AAA -- This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and repay
principal.
AA -- Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the highest three ratings used by Moody's for
corporate and municipal bonds:
Aaa -- Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected
24
<PAGE>
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate
bonds rated Aa and A. The modifier 1 indicates that the bond being rated ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the
lower end of its generic rating category. With regard to municipal bonds, those
bonds in the Aa and A groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
AAA -- Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to
time because of economic conditions.
A -- Bonds that are rated A have protection factors which are average
but adequate. However, risk factors are more variable and greater in
periods of economic stress.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not
25
<PAGE>
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F1+.
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA and A ratings
may be modified by the addition of a plus or minus sign to show relative
standing within this major rating category.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in
the preceding group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in
degree than issues rated F1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong.
26
<PAGE>
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is
satisfactory, but the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is maintained.
D&P uses the short-term debt ratings described above for commercial paper.
Fitch uses the short-term debt ratings described above for commercial paper.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the
rated instrument. The following are the three highest investment grade ratings
used by BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to
repay principal and interest on a timely basis with limited
incremental risk versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
27
<PAGE>
NATIONS INSTITUTIONAL RESERVES
(formerly known as The Capitol Mutual Funds)
Statement of Additional Information
NATIONS CASH RESERVES
MARSICO SHARES
JUNE __, 1999
This Statement of Additional Information (the "SAI") is not a prospectus. It is
intended to provide additional information regarding one class of shares,
Marsico Shares, of Nations Cash Reserves, a series of Nations Institutional
Reserves (the "Trust"). The SAI should be read in conjunction with the Trust's
prospectus dated __________, 1999, as supplemented (the "Prospectus"). All terms
used in this SAI that are defined in the Prospectus will have the same meanings
as assigned in the Prospectus. Copies of the Prospectus 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
THE TRUST............................................................1
INVESTMENT LIMITATIONS...............................................1
General........................................................1
Fundamental Investment Limitations.............................1
ADDITIONAL INFORMATION ON FUND INVESTMENTS...........................3
General........................................................3
Asset-Backed Securities........................................4
Bank Instruments...............................................5
Borrowings.....................................................5
Commercial Instruments.........................................5
Corporate Debt Securities......................................6
Guaranteed Investment Contracts................................7
Other Investment Companies.....................................8
Repurchase Agreements .........................................7
Restricted Securities..........................................8
Securities Lending.............................................8
Stripped Securities............................................9
Tax-Exempt Instruments.........................................9
U.S. and Foreign Bank Obligations.............................10
U.S. Government Obligations...................................10
Variable- and Floating-Rate Instruments.......................11
When-Issued Purchases and Forward Commitments ...............11
THE ADVISER.........................................................12
ADMINISTRATOR AND CO-ADMINISTRATOR..................................15
COUNSEL.............................................................16
TRUSTEES AND OFFICERS...............................................16
Nations Funds Retirement Plan.................................23
Nations Funds Deferred Compensation Plan......................23
COMPENSATION TABLE..................................................24
LIMITATION OF TRUSTEES' LIABLITY....................................25
SHAREHOLDER LIABILITY...............................................25
PERFORMANCE INFORMATION.............................................25
General.......................................................25
Yield Calculations............................................26
PURCHASE AND REDEMPTION OF SHARES...................................27
Exchanges.....................................................28
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS........................28
DETERMINATION OF NET ASSET VALUE....................................30
ADDITIONAL INFORMATION CONCERNING TAXES.............................30
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General.......................................................31
Excise Tax....................................................31
Taxation of Fund Investments..................................32
Capital Gain Distributions....................................32
Other Distributions...........................................32
Disposition of Fund Shares....................................32
Federal Income Tax Rates......................................33
Corporate Shareholders........................................33
Foreign Shareholders..........................................33
New Regulations...............................................34
Backup Withholding............................................34
Other Matters.................................................34
FUND TRANSACTIONS AND BROKERAGE.....................................34
General Brokerage Policy......................................34
Section 28(e) Standards.......................................37
CUSTODIAN AND TRANSFER AGENT........................................38
DISTRIBUTOR.........................................................38
DESCRIPTION OF SHARES...............................................39
5% SHAREHOLDERS.....................................................40
REPORTS EXPERTS AND FINANCIAL INFORMATION...........................40
ii
<PAGE>
THE TRUST
Nations Institutional Reserves (formerly known as The Capitol Mutual Funds)1 is
an open-end management investment company established as a Massachusetts
business trust under an Agreement and Declaration of Trust dated January 22,
1990. The Agreement and Declaration of Trust permits the Trust to offer separate
series of units of beneficial interest ("shares"). Each share of each series
represents an equal proportionate interest in that series. See "Description of
Shares." This Statement of Additional Information ("SAI") relates to the Marsico
Shares of Nations Cash Reserves (the "Fund").
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 and Nations LifeGoal
Funds, Inc. The Nations Fund Family is currently undergoing a restructuring. As
a result, certain funds originally series of Nations Fund, Inc. ("NFI"), Nations
Fund Trust ("NFT") and Nations Fund Portfolios, Inc. ("NFP") have been moved
into Nations Institutional Reserves. Certain information in this SAI will
reference the other fund companies of the Nations Fund Family.
INVESTMENT LIMITATIONS
GENERAL
Information concerning the Fund's investment objective is set forth in the
Prospectus under the headings "About the Fund--Objectives." There can be no
assurance that the Fund will achieve its objectives. The principal features of
the Fund's investment programs and the primary risks associated with those
investment programs are discussed in the Prospectus under the heading "About the
Fund--How Objectives Are Pursued" and "Appendix A--Portfolio Securities." The
securities in which the Fund invests may not yield as high a level of current
income as longer term or lower grade securities, which generally have less
liquidity and greater fluctuation in value. The values of the securities in
which the Fund invests fluctuate based upon interest rates, the financial
stability of the issuer and market factors.
FUNDAMENTAL INVESTMENT LIMITATIONS:
Significant investment restrictions applicable to the Fund's investment programs
are set forth in the Prospectus 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 the Fund's shareholders (as that
term is defined in Section 2(a)(42) of the Investment Company Act of 1940 (the
"1940 Act")), the Fund will not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
_______________________
1
More specifically, Nations Institutional Reserves is the name under which The
Capitol Mutual Funds conducts business.
1
<PAGE>
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding one-third of the value of the Fund's total assets. Any
borrowing will be done from a bank and to the extent that such borrowing
exceeds 5% of the value of the Fund's assets, asset coverage of at least
300% is required. In the event that such asset coverage shall at any time
fall below 300%, the Fund shall, within three days thereafter or such
longer period as the SEC may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. This borrowing provision is included
solely to facilitate the orderly sale of portfolio securities to
accommodate heavy redemption requests if they should occur and is not for
investment purposes. All borrowings will be repaid before making additional
investments and any interest paid on such borrowings will reduce income.
4. Make loans, except that (a) the Fund may purchase or hold debt instruments
in accordance with its investment objective and policies; (b) the Fund may
enter into repurchase agreement and non-negotiable time deposits, provided
that repurchase agreements and non-negotiable time deposits maturing in
more than seven days, illiquid restricted securities and other securities
which are not readily marketable are not to exceed, in the aggregate, 10%
of the Fund's total assets and (c) the Fund may engage in securities
lending as described in each prospectus and in this SAI.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan, except as permitted with respect to securities lending.
6. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term credits
as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a Fund security.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder and may only purchase
securities of other money market funds. Under these rules and regulations,
the Fund is prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Fund owns more than 3%
of the total voting stock of the company; securities issued by any one
investment company represent more than 5% of the Fund's total assets; or
securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund. These investment
companies typically incur fees that are separate from those fees incurred
directly by the Fund. The Fund's purchase of such investment company
securities results in the layering of expenses, such that Shareholders
would indirectly bear a proportionate share of the operating expenses of
such investment companies, including advisory fees. It is the position of
the Securities and Exchange Commission's Staff that certain nongovernmental
issues of CMOs and REMICS constitute investment companies pursuant to the
1940 Act and either (a) investments in such instruments are subject to the
limitations set forth above or (b) the issuers of such instruments have
received orders from the SEC exempting such instruments from the definition
of investment company.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
2
<PAGE>
11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, or partner of the Trust or Adviser of the Trust
owns beneficially more than 1/2 of 1% of the shares or securities of such
issuer and all such officers, trustees and partners owning more than 1/2 of
1% of such shares or securities together own more than 5% of such shares or
securities.
12. Invest in interest in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. Write or purchase puts, calls or combinations thereof.
14. Invest in warrants valued at lower of cost or market exceeding 5% of the
Fund's net assets. Included in that amount but not to exceed 2% of the
Fund's net assets, may be warrants not listed on the New York Stock
Exchange or American Stock Exchange.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
GENERAL
Information concerning the Fund's investment objective is set forth in the
Prospectus of the Trust under the heading "About the Fund--Objectives." There
can be no assurance that the Fund will achieve its objectives. The principal
features of the Fund's investment programs and the primary risks associated with
those investment programs are discussed in the Prospectus under the heading
"About the Fund--How Objectives Are Pursued" and "Appendix A--Portfolio
Securities." The securities in which the Fund invests may not yield as high a
level of current income as longer term or lower grade securities, which
generally have less liquidity and greater fluctuation in value. The values of
the securities in which the Fund invests fluctuate based upon interest rates,
the financial stability of the issuer and market factors.
Additional information on the particular types of securities in which the Fund
may invest in is set forth below.
ASSET-BACKED SECURITIES
Pursuant to its investment policies, the Fund may invest in mortgage-backed
securities issued or guaranteed by U.S. Government agencies such as the
Government National Mortgage Association ("GNMA"), a wholly-owned U.S.
Government corporation which guarantees the timely payment of principal and
interest. The market value and interest yield of these instruments can vary due
to market interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership interests in a pool of federally
insured mortgage loans. GNMA certificates represent ownership interests in
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular GNMA pool. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be "passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly
3
<PAGE>
scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
The Fund may invest in non-mortgage asset-backed securities. Non-mortgage
asset-backed securities include interests in pools of receivables, such as motor
vehicle installment purchase obligations and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the certificate of title to
each vehicle financed, pursuant to the obligations underlying the asset-backed
securities, usually is not amended to reflect the assignment of the seller's
security interest for the benefit of the holders of the asset-backed securities.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on those securities. In
addition, various state and Federal laws give the motor vehicle owner the right
to assert against the holder of the owner's obligation certain defenses such
owner would have against the seller of the motor vehicle. The assertion of such
defenses could reduce payments on the related asset-backed securities. Insofar
as credit card receivables are concerned, credit card holders are entitled to
the protection of a number of state and Federal consumer credit laws, many of
which give such holders the right to set off certain amounts against balances
owed on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder.
The development of non-mortgage-backed securities is at an early stage compared
to mortgage-backed securities. While the market for asset-backed securities is
becoming increasingly liquid, the market for mortgage-backed securities issued
by certain private organizations and non-
4
<PAGE>
mortgage-backed securities is not as well developed. The Adviser to the Fund
intends to limit its purchases of mortgage-backed securities issued by certain
private organizations and non-mortgage-backed securities to securities that are
readily marketable at the time of purchase.
BANK INSTRUMENTS
Obligations of U.S. commercial banks include certificates of deposit, time
deposits and bankers' acceptances. Certificates of deposit are negotiable
interest-bearing instruments with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Time deposits earn a specified rate of interest over a
definite period of time; however, time deposits cannot be traded in the
secondary market. Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods and furnish dollar
exchanges. Maturities are generally six months or less.
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 the 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 the Fund under the Agreement over the last fiscal year, if any,
can by found in the Fund's 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. The Fund will limit purchases of commercial
instruments to instruments which: (a) if rated by at least two Nationally Rated
Statistical Rating Organizations ("NRSROs"), are rated in the highest rating
category for short-term debt obligations given by such organizations, or if only
rated by one such organization, are rated in the highest rating category for
short-term debt obligations given by such organization; or (b) if not rated, are
(i) comparable in priority and security to a class of short-term instruments of
the same issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the Adviser.
Investments by the Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objectives. In
addition, the Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Fund as previously
described.
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 the Fund, the 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 the Fund to dispose of an instrument if the issuer
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defaulted on its payment obligation or during periods when the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss. The Fund may invest in 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.
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 Fund are met. Variable-rate instruments
acquired by the Fund will be rated at a level consistent with the 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.
The Fund 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.
CORPORATE DEBT SECURITIES
The Fund 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). The Fund may also invest in
corporate debt securities of foreign issuers.
The corporate debt securities in which the Fund 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 Fund will be rated in the top
two categories by a NRSRO. Corporate debt securities that are not rated may be
purchased by the Fund 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 the 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.
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GUARANTEED INVESTMENT CONTRACTS
Guaranteed investment contracts, investment contracts or funding agreements
(each referred to as a "GIC") are investment instruments issued by highly rated
insurance companies. Pursuant to such contracts, the Fund may make cash
contributions to a deposit fund of the insurance company's general or separate
accounts. The insurance company then credits to the Fund guaranteed interest.
The insurance company may assess periodic charges against a GIC for expense and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. The purchase price paid for a GIC generally becomes part of
the general assets of the issuer, and the contract is paid from the general
assets of the issuer.
The Fund will only purchase GICs from issuers which, at the time of purchase,
meet quality and credit standards established by the Adviser. Generally, GICs
are not assignable or transferable without the permission of the issuing
insurance companies, and an active secondary market in GICs does not currently
exist. Also, the Fund may not receive the principal amount of a GIC from the
insurance company on seven days' notice or less, at which point the GIC may be
considered to be an illiquid investment.
The Fund will acquire GlCs so that they, together with other instruments in the
Fund's portfolio which are not readily marketable, will not exceed applicable
limitations on the Fund's investments in illiquid securities. The Fund will
restrict its investments in GlCs to those having a term of 397 days or less. In
determining average weighted portfolio maturity, a GIC will be deemed to have a
maturity equal to the period of time remaining under the next readjustment of
the guaranteed interest rate.
OTHER INVESTMENT COMPANIES
In seeking to attain its investment objectives, the Fund may invest in
securities issued by other investment companies within the limits prescribed by
the 1940 Act. The 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, the Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including Advisory fees. These expenses would be in addition to the Advisory and
other expenses that the Fund bears 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.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., the Fund) obtains
a security and simultaneously commits to return the security to the seller (a
member bank of the Federal Reserve System or recognized securities dealer) at an
agreed upon price (including principal and interest) on an agreed upon date
within a number of days (usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of the
underlying security.
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The repurchase agreements entered into by the Fund will provide that the
underlying security at all times shall have a value at least equal to 102% of
the resale price stated in the agreement (the Adviser, the Custodian or an agent
of either such party monitors compliance with this requirement). Under all
repurchase agreements entered into by the Fund, the Fund's custodian or its
agent must take possession of the underlying collateral. However, if the seller
defaults, the Fund could realize a loss on the sale of the underlying security
to the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Fund may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
Repurchase agreements are a permissible investment for the Fund.
RESTRICTED SECURITIES
Restricted securities are securities that may not be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act")
absent an exemption from registration. Certain of the permitted investments of
the Fund may be restricted securities and the Adviser may invest in restricted
securities based on guidelines which are the responsibility of and are
periodically reviewed by the Board of Trustees. Under these guidelines, the
Adviser will consider the frequency of trades and quotes for the security, the
number of dealers in, and potential purchasers for, the securities, dealer
undertakings to make a market in the security, and the nature of the security
and of the marketplace trades. In purchasing such restricted securities, the
Adviser intends to purchase securities that are exempt from registration under
Rule 144A and Section 4(2) promulgated under the 1933 Act. The Fund may purchase
liquid and illiquid restricted securities. Purchases of illiquid restricted
securities are subject to the Fund's investment limitations on the purchase of
illiquid securities.
SECURITIES LENDING
To increase return on portfolio securities, the Fund may lend its portfolio
securities to broker/dealers and other institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government,
its agencies or instrumentalities, an irrevocable letter of credit issued by (i)
a U.S. bank that has total assets exceeding $1 billion and that is a member of
the Federal Deposit Insurance Corporation, or (ii) a foreign bank that is one of
the 75 largest foreign commercial banks in terms of total assets, or any
combination thereof. Such loans will not be made if, as a result, the aggregate
of all outstanding loans of the Fund involved exceeds one-third of the value of
its total assets taken at fair market value. The Fund will continue to receive
interest on the securities lent while simultaneously earning interest on the
investment of the cash collateral in U.S. government securities, including cash
collateral received for securities loans. However, the Fund will normally pay
lending fees to such broker/dealers and related expenses from the interest
earned on investment collateral. Any loan may be terminated by either party upon
reasonable notice to the other party.
There may be risks of delay in receiving additional collateral or in recovering
the securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially. However, loans are made only to
borrowers deemed by the Adviser to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
Pursuant to the securities loan agreement the Fund is able to terminate the
securities loan upon notice of not more than five
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business days and thereby secure the return to the Fund of securities identical
to the transferred securities upon termination of the loan.
STRIPPED SECURITIES
The Fund 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 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 the 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 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.
U.S. AND FOREIGN BANK OBLIGATIONS
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. The Fund limits its investments in domestic
bank obligations to banks having total assets in
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excess of $1 billion and subject to regulation by the U.S. Government. The 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 the 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 the Fund's right to transfer a beneficial
interest in the deposit to a third party.
The 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 the 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. The 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. The Fund
will limit its investment in securities of foreign banks to not more than 20% of
total assets at the time of investment.
The 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
The Fund may invest in U.S. Government obligations. Examples of the types of
U.S. Government obligations that may be held by the Fund 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
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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.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
The Fund may purchase variable-rate and floating rate obligations as described
in the Prospectuses. If such instrument is not rated, the Adviser will consider
the earning power, cash flows, and other liquidity ratios of the issuers and
guarantors of such obligations 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 the
Fund can recover payment of principal as specified in the instrument.
Variable-rate demand notes held by the Fund may have maturities of more than 397
days, provided (i) the Fund is entitled to payment principal on not more than 30
days' notice, or at specified intervals not exceeding 397 days (upon not more
than 30 days' notice), and (ii) the rate of interest on such note is adjusted
automatically at periodic intervals which may extend up to 397 days.
The variable- and-floating rate demand instruments that the Fund may purchase
include participations in Municipal Securities purchased from and owned by
financial institutions, primarily banks. Participation interests provide the
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
Fund. 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.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS
The Fund may agree to purchase securities on a when-issued basis or enter into a
forward commitment to purchase securities. When the Fund engages in these
transactions, its custodian will segregate cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because the Fund
will segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
The Fund will make commitments to purchase securities on a when-issued basis or
to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell
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securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a capital
gain or loss.
When the Fund engages in when-issued and forward commitment transactions, it
relies on the other party to consummate the trade. Failure of such party to do
so may result in the Fund's incurring a loss or missing an opportunity to obtain
a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the net asset value of the Fund
starting on the date the Fund agrees to purchase the securities. The Fund does
not earn dividends on the securities it has committed to purchase until they are
paid for and delivered on the settlement date. When the Fund makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
THE ADVISER
NationsBanc Advisors, Inc. ("NBAI") serves as investment adviser to the Fund
pursuant to an investment advisory agreement (the "Investment Advisory
Agreement") dated January 1, 1996, as amended March 31, 1999. TradeStreet
Investment Associates, Inc. ("TradeStreet") serves as investment sub-adviser to
the Fund, pursuant to an investment sub-advisory agreement dated January 1,
1996, as amended March 31, 1999 (the "Sub-Advisory Agreement"). As used herein,
"Adviser" shall mean NBAI and/or TradeStreet as the context may require.
NBAI also serves as the investment adviser to the other portfolios of the Trust
as well as the portfolios of Nations Fund Trust, Nations Fund, Inc., Nations
Fund Portfolios, Inc., Nations Annuity Trust, Nations LifeGoal Funds, Inc., and
Nations Master Investment Trust, each a registered investment company that is
part of the Nations Funds Family. In addition, NBAI serves as the investment
advisor to Hatteras Income Securities, Inc., Nations Government Income Term
Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Nations
Balanced Target Maturity Fund, Inc., each a closed-end diversified management
investment company traded on the New York Stock Exchange. TradeStreet also
serves as the investment sub-adviser to other portfolios of the Trust as well as
the Nations Fund Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc.,
Nations Annuity Trust, Nations LifeGoal Funds, Inc., Nations Master Investment
Trust, Nations Government Income Term Trust 2003, Inc., Nations Government
Income Term Trust 2004, Inc. and Nations Balanced Target Maturity Fund, Inc.
NBAI and TradeStreet are each wholly owned subsidiaries of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
BankAmerica Corporation, a bank holding company organized as a Delaware
corporation.
The Investment Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of NBAI or any of its officers, 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 the 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 the Fund (as defined in
Section 2(a)(42) of the
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1940 Act), and (b) the affirmative vote of a majority of the Trust's Trustees
who are not parties to such Agreement or "interested persons" (as defined in the
1940 Act) of a party to such Agreement (other than as Trustees of the Trust), by
votes cast in person at a meeting specifically called for such purpose. The
continuation of the Investment Advisory and Sub-Advisory Agreement with
TradeStreet was last approved by the Board of Trustees at the November 5-6, 1998
Board of Trustees meeting and the amendment to the Investment Advisory and the
Sub-Advisory Agreement with TradeStreet was approved by the Board of Trustees at
the March 31, 1999 Board of Trustees meeting.
The Investment Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to the Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund) or by NBAI on 60 days' written
notice.
The Sub-Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of obligations or duties
thereunder on the part of TradeStreet or any of its officers, Trustees,
employees or agents, TradeStreet shall not be subject to liability to NBAI or to
the Trust for any act or omission in the course of, or connected with, rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
The Sub-Advisory Agreement became effective with respect to the Fund as of its
execution date and, unless sooner terminated, continue in full force and effect
for one year, and may be continued with respect to the Fund thereafter, provided
that the continuation of the Agreement is specifically approved at least
annually by (a) (i) the Trust's Board of Trustees or (ii) the vote of "a
majority of the outstanding voting securities" of the Fund (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
the Trust's Trustees who are not parties to such 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 Agreement will terminate automatically in the event of its
assignment, and is terminable with respect to the Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund), or by NBAI or TradeStreet on
60 days' written notice.
The Fund, in any advertisement or sales literature, may advertise the names,
experience and/or qualifications of the portfolio manager(s) of the Fund, or if
since the Fund is managed by team or committee, the Fund may advertise the
names, experience and/or qualifications of any such team or committee member.
From May 1, 1994 to December 31, 1995, NationsBank served as investment adviser
to Nations Cash Reserves, pursuant to an Investment Advisory Agreement dated May
1, 1994. For the fiscal period from May 1, 1995 to December 31, 1995, Nations
Cash Reserves paid Advisory fees to NationsBank and from January 1, 1996 to
April 30, 1996, Nations Cash Reserves paid Advisory fees to NBAI as follows:
Fees
Reimb. Fees
NationsBank NationsBank by NBAI NBAI Reimb. by
Fees Paid Fees Waived NationsBank Fees Paid Fees Waived NBAI
1995 1995 1995 1996 1996 1996
- ---- ---- ---- ---- ---- ----
$88,594 $583,033 $0 $91,313 $814,949 $0
13
<PAGE>
For the fiscal year from May 1, 1996 to April 30, 1997 Nations Cash Reserves
paid Advisory fees to NBAI as follows:
Fees Reimb.
Net Net by
Fees Paid Fees Waived NBAI
1997 1997 1997
---- ---- ----
$2,357,981.18 $2,797,837.24 $0
For the fiscal year from May 1, 1997 to April 30, 1998 Nations Cash Reserves
paid Advisory fees to NBAI as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived NBAI
1998 1998 1998
---- ---- ----
$5,755,496 $5,510,631 $0
For the fiscal period from January 1, 1996 to April 30, 1996 NBAI paid
Sub-Advisory fees to TradeStreet as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1996 1996 1996
---- ---- ----
$99,689 $0 $0
For the fiscal year from May 1, 1996 to April 30, 1997 NBAI paid Sub-Advisory
fees to TradeStreet as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1997 1997 1997
---- ---- ----
$567,140 $0 $0
14
<PAGE>
For the fiscal year from May 1, 1997 to April 30, 1998 NBAI paid Sub-Advisory
fees to TradeStreet as follows:
Net Net Fees Reimb. by
Fees Paid Fees Waived Adviser
1998 1998 1998
---- ---- ----
$1,214,726 $0 $0
ADMINISTRATOR AND CO-ADMINISTRATOR
Stephens Inc. and NBAI (the "Co-Administrators") serve as co-administrators of
the 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 annual rate 0.10% of the Fund's average
daily net assets.
Pursuant to the Co-Administration Agreement, Stephens has agreed to, among other
things, (i) maintain office facilities for the Fund, (ii) furnish statistical
and research data, data processing, clerical, and internal executive and
administrative services to the Trust, (iii) furnish corporate secretarial
services to the Trust, including coordinating the preparation and distribution
of materials for Board of 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 Fund, (ii)
compute the Fund's net asset value and net income, (iii) accumulate information
required for the Trust's reports to shareholders and the SEC, (iv) prepare and
file the Trust's federal and state tax returns, (v) perform monthly compliance
testing for the Trust, and (vi) prepare and furnish the Trust monthly broker
security transaction summaries and transaction listings and performance
information. 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, respectively, 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 Fund or to its shareholders except in the case of Stephens' or NBAI's
willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Bank of New York ("BNY") serves as sub-administrator for the Fund pursuant
to a sub-administration agreement. Pursuant to its terms, BNY assists Stephens
and NBAI in supervising, coordinating and monitoring various aspects of the
Fund's administrative operations. For providing such services, BNY is entitled
to receive a monthly fee from NBAI based on an annual rate of 1.25% of the
15
<PAGE>
first $3 billion; 1.00% of the next $3 billion; .50% of the next $4 billion; and
.25 on the excess of the Fund's average daily net assets.
The table set forth below states the net combined Administration fees paid to
Stephens and waived for the fiscal years ended April 30, 1996, 1997 and 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 December 1, 1999.
For the fiscal years ended April 30, 1996, 1997 and 1998 the Fund paid combined
administrative fees as follows:
<TABLE>
<CAPTION>
Net
Net Fees Net Net Fees Net Net Fees
Fees Paid Waived Fees Paid Waived Fees Paid Waived
1996 1996 1997 1997 1998 1998
---- ---- ---- ---- ---- ----
Nations Cash
<S> <C> <C> <C> <C> <C> <C>
Reserves $266,305 $259,658 $206,640 $1,511,966 $444,739 $3,310,637
</TABLE>
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006-1812.
TRUSTEES AND OFFICERS
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees and the officers of the Trust and their principal occupations for the
last five years are set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
Edmund L. Benson, III, 62 Trustee Director, President and Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (Insurance); Trustee, Nations
728 East Main Street Institutional Reserves, Nations Fund Trust,
Suite 400 Nations Annuity Trust and Nations Master
Richmond, VA 23219 Investment Trust; Director, Nations Fund, Inc.,
Nations Fund Portfolios, Inc. and Nations LifeGoal
Funds, Inc.
16
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
James Ermer, 56 Trustee Senior Vice President- Finance, CSX Corporation
13705 Hickory Nut Point (transportation and natural resources); Director,
Midlothian, VA 23112 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 Nations LifeGoal Funds, Inc.
William H. Grigg, 66 Trustee Since June 1997, Chairman Emeritus; June 1997 to
Duke Power Co. April 1994, Chairman and Chief Executive Officer;
422 South Church Street November 1991 to April 1994, Vice Chairman, Duke
PB04G Power Co.; from April 1988 to November 1991,
Charlotte, NC 28242-0001 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.
17
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
<S> <C> <C>
Thomas F. Keller, 67 Trustee R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and Dean, Fuqua School of Business,
Duke University Duke University; Director, LADD Furniture, Inc.;
Durham, NC 27706 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.
Carl E. Mundy, Jr., 64 Trustee Commandant, United States Marine Corps, from July
9308 Ludgate Drive 1991 to July 1995; Commanding General, Marine
Alexandria, VA 23309 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.
18
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
James B. Sommers, 60* Trustee President, NationsBank Trust, from January 1992 to
237 Cherokee Road September 1996; Executive Vice President,
Charlotte, NC 28207 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.
A. Max Walker, 77* President, Trustee and Financial consultant; Formerly, President, A. Max
4580 Windsor Gate Court Chairman of the Board Walker, Inc.; Director and Chairman of the Board,
Atlanta, GA 30342 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.
19
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Charles B. Walker, 60 Trustee Since 1989, Director, Executive Vice President,
Ethyl Corporation Chief Financial Officer and Treasurer, Ethyl
P.O. Box 2189 Corporation (chemicals, plastics, and aluminum
330 South Fourth Street manufacturing); since 1994, Vice Chairman, Ethyl
Richmond, VA 23217 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.
Thomas S. Word, Jr., 61* Trustee Partner, McGuire Woods Battle & Boothe (law);
McGuire, Woods, Battle Director, Vaughan Bassett Furniture Company,
& Boothe Director VB Williams Furniture Company, Inc.;
One James Center Director, Nations Fund, Inc., Nations Fund
Richmond, VA 23219 Portfolios, Inc. and Nations LifeGoal Funds, Inc.;
Trustee, Nations Institutional Reserves, Nations
Fund Trust, Nations Annuity Trust and Nations
Master Investment Trust.
Richard H. Blank, Jr., 42 Secretary and Treasurer Since 1999, Senior Vice President of Stephens; 1994
Stephens Inc. to 1999, Vice President of Mutual Fund Services,
111 Center Street Stephens Inc.; 1990 to 1994, Manager Mutual Fund
Suite 300 Services, Stephens Inc.; 1983 to 1990, Associate in
Little Rock, AR 72201 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
LifeGoal Funds, Inc.
20
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Trust and Nations LifeGoal Funds, Inc.
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.; Associate
Stephens Inc. Corporate Counsel, Federated Investors; from 1991
111 Center Street to 1993, Staff Attorney, Securities and Exchange
Suite 300 Commission from 1988 to 1991
Little Rock, AR 72201
21
<PAGE>
PRINCIPAL OCCUPATIONS
DURING PAST 5 YEARS
POSITION WITH AND CURRENT
NAME, ADDRESS, AND AGE THE TRUST DIRECTORSHIPS
- ---------------------- --------- -------------
Richard H. Rose, 44 Assistant Treasurer Since 1994, Vice President, Division Manager, First
First Data Investor Services Data Investor Services Group, Inc., since 1988,
Group, Inc. Senior Vice President, The Boston Company Advisors,
One Exchange Place Inc.; Assistant Treasurer, Nations Institutional
Boston, MA 02109 Reserves, Nations Fund Trust, Nations Fund, Inc.,
Nations Fund Portfolios, Inc., Nations Annuity
Trust, Nations Master Investment Trust and Nations
LifeGoal Funds, Inc.
Steven Levy, 34 Assistant Treasurer Since 1997, Vice President of
First Data Investor Services Fund Accounting, First Data
Group Inc. Investor Services Group, Inc.;
One Exchange Place prior to 1997, Investment
Boston, MA 02109 Operations Manager, Franklin
Templeton Group and Assistant
Vice President of Fund
Accounting, Scudder, Stevens
and Clark, Inc.
</TABLE>
- --------------------
* James P. Sommers, A. Max Walker and Thomas S. Word, Jr. are considered
"interested persons" of the Trust for purposes of the 1940 Act.
Mr. Rose serves as Treasurer to certain other investment companies for which
First Data or its affiliates serve as sponsor, distributor, administrator and/or
investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc., Nations Fund
Portfolios, Inc. and Nations LifeGoal Funds, Inc. and a Trustee of Nations Fund
Trust, 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, Louise P. Newcomb
and James E. Banks also are officers of Nations Fund, Inc., Nations Fund
Portfolios, Inc., Nations LifeGoal Funds, Inc., Nations Fund Trust, Nations
Annuity Trust and Nations Master Investment Trust.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the Chairman
of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000
for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for each telephonic Board meeting attended. All
Trustees receive reimbursements for expenses related to their attendance at
meetings of the Board of Trustees. Officers receive no direct remuneration in
such capacity from the Trust. No person who is an officer, director, or employee
of Bank of America or its affiliates serves as an officer, Trustee, or
22
<PAGE>
employee of the Trust. The Trustees and officers of Nations Funds own less than
1% of the shares of the Trust.
The Trust has adopted a Code of Ethics which, among other things, prohibits each
access person of the Trust from purchasing or selling securities when such
person knows or should have known that, at the time of the transaction, the
security (i) was being considered for purchase or sale by a Fund or (ii) was
being purchased or sold by a Fund. For purposes of the Code of Ethics, an access
person means (i) a Trustee or officer of the Trust, (ii) any employee of the
Trust (or any company in a control relationship with the Trust) who, in the
course of his/her regular duties, obtains information about, or makes
recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including mutual fund shares, money market
instruments and certain U.S. Government securities. To facilitate enforcement,
the Code of Ethics generally requires that the Trust's access persons, other
than its "disinterested" Trustees, submit reports to the Trust's designated
compliance person regarding transactions involving securities which are eligible
for purchase by a Fund.
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
23
<PAGE>
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.
<TABLE>
<CAPTION>
COMPENSATION TABLE
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ESTIMATED
COMPENSATION ACCRUED AS ANNUAL BENEFITS TOTAL COMPENSATION
NAME OF PERSON FROM PART OF FUND UPON RETIREMENT FROM REGISTRANT
POSITION (1) REGISTRANT(2) EXPENSES PLAN & FUND COMPLEX(3)(4)
- ------------ ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
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%
Trustee Def'd)
Thomas F. Keller $9,000.00 $1,124.02 $30,000.00 $116,115.17 (100%
Trustee Def'd)
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%
Trustee Def'd)
James P. Sommers $6,750.00 $1,124.02 $30,000.00 $43,875.00
Trustee
Carl E. Mundy, Jr. $8,000.00 $1,124.02 $30,000.00 $54,000.00
--------- --------- ---------- ----------
Trustee
$79,750.00 $10,116.19 $275,000.00 $733,980.15
========== =========== ============ ===========
</TABLE>
(1) All Trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no
direct remuneration in such capacity from the Trust.
(2) For current fiscal year and includes estimated future payments. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Fund of the Trust, Nations Fund, Inc., Nations
24
<PAGE>
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 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.
LIMITATION OF TRUSTEES' LIABILITY
The Agreement and Declaration of Trust provides that a Trustee shall be liable
only for his own willful defaults and, if reasonable care has been exercised in
the selection of officers, agents, employees or investment advisers, shall not
be liable for any neglect or wrongdoing of any such person. The Agreement and
Declaration of Trust also provides that the Trust will indemnify its Trustees
and officers against liabilities and expenses incurred in connection with actual
or threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Agreement
and Declaration of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Trust.
However, nothing in the Agreement and Declaration of Trust shall protect or
indemnify a Trustee against any liability for his willful misfeasance, bad
faith, gross negligence or reckless disregard of his duties.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Agreement and Declaration of Trust contains
an express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Agreement and Declaration of Trust provides for
indemnification out of the Trust property for any shareholder held personally
liable for the obligations of the Trust.
PERFORMANCE INFORMATION
GENERAL
Yield information and other performance information for the Fund may be obtained
by calling the Trust at (800) 321-7854.
25
<PAGE>
From time to time, the Fund's yield and total return may be quoted in
advertisements, shareholder reports, and other communications to shareholders.
The Fund 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.
From time to time the Fund may advertise the "current yield" and "effective
compound yield" of a class of shares of the Fund. The yield figure is based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a seven-day period (which period will be stated in the advertisement). This
income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
a the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
YIELD CALCULATIONS
The current yield of the Marsico Shares of the Fund will be calculated daily
based upon the seven days ending on the date of calculation ("base period"). The
yield is computed by determining the net change (exclusive of capital changes)
in the value of a hypothetical pre-existing shareholder account having a balance
of one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the Fund is determined by computing the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
Effective Yield = [(Base Period Return + 1) 365/7)]- 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on portfolio assets.
The yield of the Fund fluctuates, and the annualization of a week's dividend is
not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
Yields are one basis upon which investors may compare the Fund with other money
market funds; however, yield of other money market funds and other investment
vehicles may not be comparable
26
<PAGE>
because of the factors set forth above and differences in the methods used in
valuing portfolio instruments.
The Fund may quote actual return performance in advertising and other types of
literature compared to indices or averages of alternative financial products
available to prospective investors. The performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts, as monitored by the Bank
Rate Monitor, and those of corporate and government security prices indices of
various durations prepared by Shearson Lehman Brothers and Salomon Brothers,
Inc. These indices are not managed for any investment goal.
The Fund may quote information obtained from the Investment Company Institute,
national financial publications, trade journals and other industry sources in
its advertising and sales literature. In addition, the Fund also may use
comparative performance information computed by and available from certain
industry and general market research and publications, such as Lipper Analytical
Services, Inc.
Statistical and performance information compiled and maintained by CDA
Technologies, Inc. and Interactive Data Corporation may also be used. CDA is a
performance evaluation service that maintains a statistical data base of
performance, as reported by a diverse universe of independently-managed mutual
funds. Interactive Data Corporation is a statistical access service that
maintains a data base of various industry indicators, such as historical and
current price/earning information and individual stock and fixed income price
and return information.
Current interest rate and yield information on governmental debt obligations of
various durations, as reported weekly by the Federal Reserve (Bulletin H.15),
may also be used. Also current rate information on municipal debt obligations or
various durations, as reported daily by the Bond Buyer, may also be used. The
Bond Buyer is published daily and is an industry accepted source for current
municipal bond market information.
Comparative information on the Consumer Price Index may also be included. This
index, as prepared by the U.S. Bureau of Labor Statistics, is the most commonly
used measure of inflation. It indicates the cost fluctuations of a
representative group of consumer goods. It does not represent a return on
investment.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions of the Fund may be effected on days on which the
Federal Reserve Bank of New York is open for business (a "Business Day").
Purchases will be effected only when federal funds are available for investment
on the Business Day the purchase order is received by the Distributor, the
Transfer Agent or their respective agents. A purchase order for the Fund must be
received by the Distributor, the Transfer Agent or their respective agents by
5:00 p.m., Eastern time. A purchase order for the Fund received after such time
will not be accepted; notice thereof will be given to the institution placing
the order and any funds received will be returned promptly to the sending
institution. If federal funds are not available by the close of regular trading
on the New York Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern
time), the order will be canceled. The purchase price is the net asset value per
share next determined after acceptance of the order by the Distributor, the
Transfer Agent or their respective agents.
Redemption orders for the Fund must be received on a Business Day before 5:00
p.m., Eastern time, and payment will normally be wired the same day. The Trust
reserves the right to wire redemption proceeds within five Business Days after
receiving a redemption order if, in the judgment of the NBAI, an earlier payment
could adversely impact the Fund. Redemption orders will not be accepted by the
Distributor,
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the Transfer Agent or their respective agents after 5:00 p.m., Eastern time for
execution on that Business Day. The redemption price is the net asset value per
share next determined after acceptance of the redemption order by the
Distributor, the Transfer Agent or their respective agents.
The Trust is required to redeem for cash all full and fractional shares of the
Trust. The redemption price is the net asset value per share of the 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 the Fund for any period during which the Exchange, NBAI, the
Distributor, the Co-Administrators, 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 Prospectus for the Marsico Shares of the Fund describes the exchange
privileges available to holders of such class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
As stated in the Prospectus for the Fund's Marsico Shares, the Trust has an
Administration Plan (the "Administration Plan") with respect to such shares.
Pursuant to the Administration Plan, the Trust may enter into agreements
("Administration Agreements") with financial institutions ("Administration
Agents") that provide administrative services to broker/dealers, banks and other
financial institutions ("Servicing Agents") with respect to the beneficial
owners of Marsico Shares of the Fund. Pursuant to the Administration Agreements,
Administration Agents shall provide administrative services as set forth therein
to Servicing Agents whose clients beneficially own Marsico Shares of the Funds,
is consideration of a fee, computed monthly in the manner set forth in the
applicable Fund's then current prospectus, at an annual rate of up to 0.10% of
the average daily net asset value of the Shares. Such services may include:
(i) processing purchase and redemption requests for Shares from Servicing Agents
and transmitting promptly net purchase and redemption orders to our distributor
or transfer agent; (ii) providing information periodically to Servicing Agents
showing their customers' positions in Shares; (iii) providing sub-accounting
with respect to Shares beneficially owned by customers of Servicing Agents or
the information to us necessary for sub-accounting; (iv) if required by law,
forwarding shareholder communications from us (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Servicing Agents; (v) forwarding to Servicing Agents proxy
statements and proxies; (vi) preparing annual, semi-annual and other similar
reports relating to the Marsico Shares; and (vii) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules or regulations.
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The Trust has also adopted a Shareholder Servicing Plan for the Marsico Class
Shares of the Fund (the "Marsico Class Servicing Plan"). Under the Marsico Class
Servicing Plan, the Trust may enter into Shareholder Servicing Agreements with
broker/dealers, banks and other financial institutions ("Servicing Agents")
pursuant to which the Servicing Agents will provide shareholder support services
to their customers who beneficially own Marsico Class Shares in the Fund. The
Marsico Class Servicing Plan permits the Trust to pay Servicing Agents a fee not
exceeding 0.25% of the average daily net asset value of the Marsico Class Shares
beneficially owned by the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the Marsico
Class Servicing Plan may include: (i) aggregating and processing purchase and
redemption requests for such Marsico Class Shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in such Marsico Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Trust on behalf of customers; (iv) providing information periodically
to customers showing their positions in such Marsico Class Shares; (v) arranging
for bank wires; (vi) responding to customers' inquiries concerning their
investment in such Marsico Class Shares; (vii) providing sub-accounting with
respect to such Marsico Class Shares beneficially owned by customers or the
information necessary for sub-accounting; (viii) if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (ix) forwarding to customers proxy statements and proxies containing
any proposals regarding the Marsico Class Servicing Plan or related agreements;
(x) general shareholder liaison services; and (xi) providing such other similar
services as the Trust reasonably request to the extent the Servicing Agents are
permitted to do so under applicable statutes, rules or regulations.
The Marsico Class Servicing Plan will continue in effect only so long as such
continuance is approved at least annually by (i) a majority of the Board of
Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a vote cast
in person at a meeting called for the purpose of voting on the Marsico Class
Servicing Plan. The Marsico Class Servicing Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Marsico Class Shares of the Fund. All material
amendments to the Marsico Class Servicing Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Marsico Class
Servicing Plan requires that quarterly written reports of the amounts spent
under the Marsico Class Servicing Plan and the purposes of such expenditures be
furnished to, and reviewed by, the Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund will be determined as of 5:00 p.m.,
Eastern time, on each day the Exchange is open for business.
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Net asset value per share of the Fund is calculated by adding the value of its
securities and other assets, subtracting its liabilities and dividing by the
number of outstanding shares. Securities will be valued by the amortized cost
method pursuant to Rule 2a-7 under the 1940 Act, which involves valuing a
security at its cost on the date of purchase and thereafter (absent unusual
circumstances) assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuations in general market rates of
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by this
method, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield of the
Fund may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by the Fund resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the Fund would be able to obtain
a somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in the Fund would experience a
lower yield. The converse would apply in a period of rising interest rates.
The Fund use of amortized cost and the maintenance of the Fund's net asset value
at $1.00 are permitted by regulations promulgated by the SEC under the 1940 Act,
provided that certain conditions are met. The Trust will maintain a
dollar-weighted average maturity in the Fund of 90 days or less, will not
purchase any instrument having a remaining maturity of more than 397 days, and
will limit its investments to those U.S. dollar-denominated instruments which
are permitted investments under SEC regulations. The regulations also require
the Trustees to establish procedures which are reasonably designed to stabilize
the net asset value per share at $1.00 for the Fund. Such procedures include the
determination of the extent of deviation, if any, of the Fund's current net
asset value per share calculated using available market quotations from the
Fund's amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews of
the amount of the deviation and the methods used to calculate such deviation. In
the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated, and, if the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to Shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. Such actions may include
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations. In addition, if the Fund incurs a significant loss
or liability, the Trustees have the authority to reduce pro rata the number of
shares of the Fund in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or liability from the Shareholder's
accrued but unpaid dividends or from future dividends while the Fund must
normally annually distribute at least 90% of its investment company taxable
income.
ADDITIONAL INFORMATION CONCERNING TAXES
The following information supplements and should be read in conjunction with
Prospectus section entitled "Tax Information." The Prospectus of the Fund
describes generally the tax treatment of distributions by the Fund. This section
of the SAI includes additional information concerning income taxes.
GENERAL
The Trust intends to continue to qualify the Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code") as long as such qualification is in the
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best interest of the Fund's shareholders. The 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 the Fund, rather than to the Trust as a whole. As a regulated
investment company, the 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) the Fund derive at least 90% of its annual gross income
from dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) the Fund diversify its holdings
so that, at the end of each quarter of the taxable year, (i) at least 50% of the
market value of the Fund's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
obligations and the securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are determined to be
engaged in the same or similar trades or businesses.
In addition, a regulated investment company must, in general, derive less than
30% of its gross income from the sale or other disposition of securities or
options thereon held for less than three months. However, this restriction has
been repealed with respect to a regulated investment company's taxable years
beginning after August 7, 1997.
The Fund must also distribute or be deemed to distribute to its shareholders at
least 90% of its 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 Fund intends 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 the Fund (other than to the
extent of its tax-exempt interest income) to the extent it does not meet certain
minimum distribution requirements by the end of each calendar year. The Fund
intends to actually or be deemed to distribute substantially all of its net
investment income and net capital gains by the end of each calendar year and,
thus, expects not to be subject to the excise tax.
TAXATION OF FUND INVESTMENTS
Except as provided herein, gains and losses on the sale of portfolio securities
by the Fund will generally be capital gains and losses. Such gains and losses
will ordinarily be long-term capital gains and losses if the securities have
been held by the Fund for more than 12 months at the time of disposition of the
securities (however, see "Capital Gain Distributions" below).
Gains recognized on the disposition of a debt obligation (including tax-exempt
obligations purchased after April 30, 1993) purchased by the Fund at a market
discount (generally at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of market discount
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which accrued, but was not previously recognized pursuant to an available
election, during the term the Fund held the debt obligation.
CAPITAL GAIN DISTRIBUTIONS
Distributions which are designated by the Fund as capital gain distributions
will be taxed to shareholders as long-term term capital gains (to the extent
such dividends do not exceed the Fund's actual net capital gains for the taxable
year), regardless of how long a shareholder has held Fund shares. Such
distributions will be designated as capital gain distributions in a written
notice mailed by the Fund to the shareholders not later than 60 days after the
close of the Fund's taxable year.
OTHER DISTRIBUTIONS
Although dividends of net investment income will be declared daily based on the
Fund's daily earnings, for Federal income tax purposes, the Fund's earnings and
profits will be determined at the end of each taxable year and will be allocated
pro rata over the entire year. For Federal income tax purposes, only amounts
paid out of earnings and profits will qualify as dividends. Thus, if during a
taxable year the Fund's declared dividends (as declared daily throughout the
year) exceed the Fund's net income (as determined at the end of the year), only
that portion of the year's distributions which equals the year's earnings and
profits will be deemed to have constituted a dividend. It is expected that the
Fund's net income, on an annual basis, will equal the dividends declared during
the year.
DISPOSITION OF FUND SHARES
A disposition of Fund shares pursuant to redemption (including a redemption
in-kind) or exchanges will ordinarily result in a taxable capital gain or loss,
depending on the amount received for the shares (or are deemed to receive in the
case of an exchange) and the cost of your shares.
If a shareholder exchanges or otherwise disposes of Fund shares within 90 days
of having acquired such shares and if, as a result of having acquired those
shares, the shareholder subsequently pays a reduced sales charge or load on a
new purchase of shares of the Fund or a different regulated investment company,
the sales charge or load previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales charge or load does
not exceed the reduction in sales charge or load on the new purchase) for the
purpose of determining the amount of gain or loss on the disposition, but will
be treated as having been incurred in the acquisition of such other shares.
Also, any loss realized on a redemption or exchange of shares of the Fund will
be disallowed to the extent that substantially identical shares are acquired
within the 61-day period beginning 30 days before and ending 30 days after the
shares are disposed of.
If a shareholder holds Fund shares for six months or less, any loss on the sale
or exchange of those shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the shares. The Treasury
Department is authorized to issue regulations reducing the six months holding
requirement to a period of not less than the greater of 31 days or the period
between regular dividend distributions where a Fund regularly distributes at
least 90% of its net tax-exempt interest, if any. No such regulations have been
issued as of the date of this SAI. In addition, if a shareholder receives a
designated capital gain distribution with respect to any Fund share and such
Fund share is held for six months or less, then (unless otherwise disallowed)
any loss on the sale or exchange of that Fund share will be treated as a
long-term capital loss to the extent of the designated capital gain
distribution. The foregoing recharacterization and disallowance rules do not
apply to losses realized under a periodic redemption plan.
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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 Fund 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 the 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.
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 Fund to estimate the portion of its
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.
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BACKUP WITHHOLDING
The Trust may be required to withhold, subject to certain exemptions, at a rate
of 31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless a shareholder
certifies that the Taxpayer Identification Number ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Trust that the shareholder's TIN is incorrect or the shareholder is
subject to backup withholding. Such tax withheld does not constitute any
additional tax imposed on the shareholder, and may be claimed as a tax payment
on the shareholder's Federal income tax return. An investor must provide a valid
TIN upon opening or reopening an account. Failure to furnish a valid TIN to the
Trust could subject the investor to penalties imposed by the IRS.
OTHER MATTERS
Investors should be aware that the investments to be made by the Fund may
involve sophisticated tax rules that may result in income or gain recognition by
the Fund without corresponding current cash receipts. Although the Fund will
seek to avoid significant noncash income, such noncash income could be
recognized by the Fund, in which case the Fund may distribute cash derived from
other sources in order to meet the minimum distribution requirements described
above.
The foregoing discussion and the discussions in the Prospectus applicable to
each shareholder address only some of the federal tax considerations generally
affecting investments in the Fund. Each investor is urged to consult his or her
tax advisor regarding specific questions as to federal, state, local 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 the Fund,
for the selection of broker/dealers, for the execution of the 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 the 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
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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 the 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 the 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 the 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 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 one or more
of the other clients of the Adviser in addition to the Fund. Investment
decisions for the 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 the 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 the 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 Fund to receive favorable tax
treatment.
The Fund 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
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bidding group. The 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 BankAmerica 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 BankAmerica 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, the 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 Fund 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 obtained from the SEC.
The Fund 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 the 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 Fund. When
a purchase or sale of the same security is made at substantially the same time
on behalf of the Fund 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 the 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 the 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 Fund 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 the
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.
36
<PAGE>
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 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 Fund.
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 Fund. 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 Fund.
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 the Fund.
NationsBank of Texas, N.A. served as Custodian for the securities and cash of
the Fund for the fiscal year ended April 30, 1998. As custodian, BNY maintains
custody of the Fund's securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of the Fund for payments of dividends,
distributions and redemptions, endorses and collects on behalf of the Fund all
checks, and receives all dividends and other distributions made on securities
owned by the Fund. For such services BNY is entitled to receive, in addition to
out-of-pocket expenses, fees at the rate of 1/2 of one basis point per annum on
the aggregate net assets of the Fund.
For the fiscal year ended April 30, 1998, the Trust paid $26,231 in aggregate
fees to NationsBank of Texas, N.A. for its services as custodian for the Trust.
37
<PAGE>
First Data, which is located at One Exchange Place, Boston, Massachusetts 02109,
serves as transfer agent ("Transfer Agent") for the Fund. Under the transfer
agency agreement, the Transfer Agent maintains the shareholder account records
for the Trust, handles certain communications between shareholders and the
Trust, and distributes dividends and distributions payable by the Trust to
shareholders, and produces statements with respect to account activity for the
Trust and its shareholders for these services.
DISTRIBUTOR
Stephens Inc. (the "Distributor") serves as the principal underwriter and
distributor of the shares of the Fund.
Pursuant to a distribution agreement (the "Distribution Agreement"), the
Distributor, as agent, sells shares of the Fund 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 the Fund, without
penalty, on 60 days' notice by the Board of 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 the 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 the Fund on the basis of
its relative net assets, plus dividend or distribution income on the Fund's
assets.
Prior to purchasing shares in the Fund, 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.
38
<PAGE>
The Agreement and Declaration of Trust authorizes the issuance of an unlimited
number of shares of the Funds and different classes of each Fund. The Fund
currently offers Marsico Class Shares to investors and prospective investors of
the portfolios of The Marsico Investment Fund (currently consisting of Marsico
Focus Fund and Marsico Growth & Income Fund). The Fund also offers Capital Class
Shares, Liquidity Class Shares, Adviser Class Shares, Market Class Shares, Daily
Class Shares, Service Class Shares, Investor Class Shares and Trust Class
Shares. Except for differences between classes of the Fund pertaining to
distribution arrangements, each share of the Fund represents an equal
proportionate interest in the Fund with each other share. Shares are entitled
upon liquidation to a pro rata share in the net assets of the Fund. Shareholders
have no preemptive rights. The Agreement and Declaration of Trust provides that
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 Fund uses the so-called "equalization accounting method" to allocate a
portion of earnings and profits to redemption proceeds. This method permits the
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 the 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.
The Marsico Shares of the Fund will vote separately on matters pertaining solely
to the Fund or class. Such matters include matters relating to the Fund's
investment advisory agreement or the class's distribution plan. The Fund will
vote as a whole on matters affecting the Fund 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
Marsico Shares of the Fund. Information is given as of [DATE].
PERCENTAGE OF SHARES
NAME AND ADDRESS HELD OF RECORD ONLY
NATIONS CASH RESERVES
Marsico Class Shares
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 Board of Trustees has selected PricewaterhouseCoopers LLP, with offices at
160 Federal Street, Boston, MA 02110, to serve as independent accountant to the
Trust.
39
<PAGE>
C-1
<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:
Consent of Independent Accountants
(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
<PAGE>
(4) Not Applicable
(5)(a) Investment Advisory Agreement with Nationsbanc Advisors,
Inc. incorporated by reference to Post-Effective Amendment
No. 17
(5)(b) Sub-Advisory Agreement with TradeStreet Investment
Associates, Inc. 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)(i)Shareholder Servicing Plan for Marsico Shares, is filed
herewith.
(15)(j)Form of Shareholder Servicing Agreement for Marsico
Shares, is filed herewith.
(15)(k)Administration Plan for Marsico Shares, is filed herewith.
(15)(l)Form of Administration Agreement for Marsico Shares, is
filed herewith.
(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
8th day of April, 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 April 8, 1999
- ------------------ of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and Secretary April 8, 1999
- ------------------------ (Principal Financial and
(Richard H. Blank, Jr.) Accounting Officer)
* Trustee April 8, 1999
- -----------------------
(Edmund L. Benson, III)
* Trustee April 8, 1999
- -----------------------
(James Ermer)
* Trustee April 8, 1999
- -----------------------
(William H. Grigg)
* Trustee April 8, 1999
- -----------------------
(Thomas F. Keller)
* Trustee April 8, 1999
- -----------------------
(Carl E. Mundy, Jr.)
* Trustee April 8, 1999
- -----------------------
(Charles B. Walker)
* Trustee April 8, 1999
- -----------------------
(Thomas S. Word)
* Trustee April 8, 1999
- -----------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
NATIONS INSTITUTIONAL RESERVES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
EX-99.B15(i) Shareholder Servicing Plan for Marsico Shares
EX-99.B15(j) Form of Shareholder Servicing Agreement for Marsico Shares
EX-99.B15(k) Administration Plan for Marsico Shares
EX-99.B15(l) Form of Administration Agreement for Marsico Shares
EX-99.B15(i)
NATIONS INSTITUTIONAL RESERVES
SHAREHOLDER SERVICING PLAN ("PLAN")
MARSICO SHARES
Section 1. Each of the proper officers of Nations Institutional Reserves
("Reserves") is authorized to execute and deliver, in the name and on behalf of
Reserves, written agreements based substantially on the form attached hereto as
Appendix A or any other form duly approved by Reserves' Board of Trustees
("Agreements") with broker/dealers, banks and other financial institutions that
are dealers of record or holders of record or which have a servicing
relationship with the beneficial owners of Marsico Shares ("Servicing Agents")
in any of Reserves' Funds set forth on Exhibit I attached hereto, provided that
any material modifications of services listed in the Agreement shall be
presented for approval or ratification by the Trustees at the next regularly
scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall
provide shareholder support services as set forth therein to their clients who
beneficially own Marsico Shares of the Fund in consideration of a fee, computed
monthly in the manner set forth in the applicable Fund's then current
prospectus, at an annual rate of up to 0.25% of the average daily net asset
value of the Marsico Shares beneficially owned by or attributable to such
clients. Affiliates of Reserves' distributor, administrator, co-administrator
and adviser are eligible to become Servicing Agents and to receive fees under
this Plan. All expenses incurred by the Fund in connection with the Agreements
and the implementation of this Plan shall be borne entirely by the holders of
the Marsico Shares of the Fund involved. If more than one Fund is involved and
these expenses are not directly attributable to the Marsico Shares of a
particular Fund, then the expenses may be allocated between or among the Marsico
Shares of the Fund in a fair and equitable manner.
Section 2. Reserves' administrator and/or co-administrator shall monitor
the arrangements pertaining to Reserves' Agreements with Servicing Agents.
Reserves' administrator and co-administrator shall not, however, be obligated by
this Plan to recommend, and Reserves shall not be obligated to execute, any
Agreement with any qualifying Servicing Agents.
Section 3. So long as this Plan is in effect, Reserves' administrator
and/or co-administrator shall provide to Reserves' Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to this Plan and the purposes for which such expenditures were
made.
Section 4. Unless sooner terminated, this Plan shall continue in effect for
a period of one year from its date of execution and shall continue thereafter
for successive annual periods, provided that such continuance is specifically
approved by a majority of the Board of Trustees, including a majority of the
Trustees who are not "interested persons," as defined in the Investment Company
Act of 1940, of Reserves and have no direct or indirect financial interest in
the operation of this Plan or in any Agreement related to this Plan (the
"Disinterested Trustees") cast in person at a meeting called for the purpose of
voting on this Plan.
1
<PAGE>
Section 5. This Plan may be amended at any time with respect to any Fund by
Reserves' Board of Trustees, provided that any material amendment of the terms
of this Plan (including a material increase of the fee payable hereunder) shall
become effective only upon the approvals set forth in Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund by
vote of a majority of the Disinterested Trustees.
Section 7. While this Plan is in effect, the selection and nomination of
the Disinterested Trustees shall be committed to the discretion of such
Disinterested Trustees.
Section 8. Reserves will preserve copies of this Plan, Agreements, and any
written reports regarding this Plan presented to the Board of Trustees for a
period of not less than six years.
2
<PAGE>
EXHIBIT I
Nations Cash Reserves
EX-99.B15(j)
NATIONS INSTITUTIONAL RESERVES
FORM OF
SHAREHOLDER SERVICING AGREEMENT
MARSICO SHARES
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement ("Agreement")
with you concerning the provision of administrative support services to your
clients ("Customers") who may from time to time beneficially own Marsico Shares
in one or more of the portfolios (the "Funds") of Nations Institutional Reserves
(the "Trust").
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide the following administrative support
services to your Customers who may from time to time beneficially own Marsico
Shares:(1) (i) aggregating and processing purchase and redemption requests for
Marsico 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 Marsico 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 Marsico Shares;
(v) arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in Marsico Shares; (vii) providing subaccounting with respect
to Marsico Shares beneficially owned by Customers or the information to us
necessary for subaccounting; (viii) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; (ix) forwarding to Customers proxy statements and proxies containing
any proposals regarding this Agreement; (x) general shareholder liaison
services; and (xi) providing such other similar services as we may reasonably
request to the extent you are permitted to do so under applicable statutes,
rules or regulations. All services rendered hereunder by you shall be performed
in a professional, competent and timely manner.
Section 2. You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as agent or,
upon the order of, and for the account of, your Customers.
Section 3. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your
- -------------------------
(1) Services may be modified or omitted in the particular case and items
relettered or renumbered.
1
<PAGE>
business, or any personnel employed by you) as may be reasonably necessary or
beneficial in order to provide the administrative support services contemplated
hereby.
Section 4. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us or the Market Shares except
those contained in our then current prospectuses and statements of additional
information, as amended or supplemented from time to time, copies of which will
be supplied by us to you, or in such supplemental literature or advertising as
may be authorized by the Distributor or us in writing.
Section 5. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect, except as provided herein. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold us harmless
from and against any and all direct or indirect liabilities or losses resulting
from requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of Marsico Shares (or orders relating to
the same) by or on behalf of Customers. You and your employees will, upon
request, be available during normal business hours to consult with us or our
designees concerning the performance of your responsibilities under this
Agreement.
Section 6. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payments therefor, a
fee as described in the applicable then current prospectuses. The fee rate
payable to you may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of Marsico Shares of any and
all Funds, including the sale of Marsico Shares to you for the account of any
Customer or Customers. Compensation payable under this Agreement is subject to,
among other things, the National Association of Securities Dealers, Inc.
("NASD") Rules of Fair Practice governing receipt by NASD members of service
fees from registered investment companies (the "NASD Service Fee Rule"). Such
compensation shall only be paid if permissible under the NASD Service Fee Rule
and shall not be payable for services that are deemed to be distribution-related
services.
Section 7. You agree to provide to us at least quarterly, a written report
of the amounts expended by you in connection with the provision of
administrative support services hereunder and the purposes for which such
expenditures were made. In addition, you will furnish us or our designees with
such information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to Customers of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors or legal counsel
designated by us), in connection with the preparation of reports to our Board of
Trustees concerning this Agreement and the monies paid or payable by us pursuant
hereto, as well as any other reports or filings that may be required by law.
Section 8. We may enter into other similar Agreements with any other person
or persons without your consent.
2
<PAGE>
Section 9. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive in connection with the investment of your Customers'
assets in Market Class Shares of the Funds, will be disclosed by you to your
Customers to the extent required by applicable laws or regulations, will be
authorized by your Customers and will not result in an excessive or unreasonable
fee to you and (iii) in the event an issue pertaining to this Agreement is
submitted for shareholder approval, and you have the authority from your
Customer to do so, you will vote any Market Class Shares held for your own
account in the same proportion as the vote of the Marsico Shares held for your
Customers' benefit.
Section 10. You agree to conform to compliance standards adopted by the
Trust or its distributor as to when a class of shares in a Fund may be
appropriately sold to particular investors.
Section 11. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee and continues
in effect until terminated. This Agreement is terminable with respect to any
series of Market Class Shares, without penalty, at any time by us (which
termination may be by a vote of a majority of the disinterested Trustees of the
Trust) or by you upon written notice to the other party hereto.
Section 12. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated herein
(with a confirming copy by mail), or to such other address as either party shall
so provide in writing to the other.
Section 13. This Agreement will be construed in accordance with the
internal laws of The Commonwealth of Massachusetts without giving effect to
principles of conflict of laws, and is nonassignable by the parties hereto.
Section 14. The names "Nations Institutional Reserves" and "Trustees" refer
respectively to the trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated January 20, 1990 which is hereby referred to and a copy of which is
on file at the office of the State Secretary of The Commonwealth of
Massachusetts and at the principal office of the Trust. The obligations of
"Nations Institutional Reserves" entered into in the name or on behalf thereof
by any of the Trustees, officers, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, officers, representatives or agents of the Trust
personally, but bind only the Trust Property (as defined in the Declaration of
Trust), and all persons dealing with any class of shares of the Trust must look
solely to the Trust Property belonging to such class for the enforcement of any
claims against the Trust.
3
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the following address: 111 Center Street, Little Rock, Arkansas 72201;
Fax No. (501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS INSTITUTIONAL RESERVES
Date: ____________________ By:_____________________________
Name:________________________
Title:_______________________
Accepted and Agreed to:
Servicing Agent
------------------------------
(Firm Name)
------------------------------
(Address)
------------------------------
(City) (State)
Fax # _________________________
Attention: _____________________
Date:_____________________________ By:___________________________
Name: ________________________
Title: _________________________
4
EXHIBIT 99.B15(k)
NATIONS INSTITUTIONAL RESERVES
ADMINISTRATION PLAN ("PLAN")
FOR MARSICO SHARES
Section 1. Each of the proper officers of Nations Institutional Reserves
("Reserves") is authorized to execute and deliver, in the name and on behalf of
Reserves, written agreements based substantially on the form attached hereto as
Appendix A or any other form duly approved by Reserves' Board of Trustees
("Agreements") with financial institutions ("Administration Agents") that
provide administrative services to broker/dealers, banks and other financial
institutions ("Servicing Agents") with respect to the beneficial owners of
Marsico Shares of the Reserves' Funds (listed on Exhibit I). Pursuant to such
Agreements, Administration Agents shall provide administrative services as set
forth therein to Servicing Agents whose clients beneficially own Marsico Shares
of the Funds in consideration of a fee, computed monthly in the manner set forth
in the applicable Fund's then current prospectus, at an annual rate of up to
0.10% of the average daily net asset value of the Marsico Shares beneficially
owned by or attributable to the clients of such Servicing Agents. Reserves'
distributor, co-administrators and adviser and their affiliates are eligible to
become Administration Agents and to receive fees under this Plan. All expenses
incurred by a Fund in connection with the Agreements and the implementation of
this Plan shall be borne entirely by the holders of the Marsico Shares of the
particular Fund involved. If more than one Fund is involved and these expenses
are not directly attributable to Marsico Shares of a particular Fund, then the
expenses may be allocated between or among the Marsico Shares of the Funds in a
fair and equitable manner.
Section 2. Unless sooner terminated, this Plan shall continue in effect
for a period of one year from its date of execution and shall continue
thereafter for successive annual periods, provided that such continuance is
specifically approved by a majority of the Board of Trustees, including a
majority of the Trustees who are not "interested persons," as defined in the
Investment Company Act of 1940 (the "Act"), of Reserves and have no direct or
indirect financial interest in the operation of this Plan or in any Agreement
related to this Plan (the "Disinterested Trustees").
Section 3. This Plan may be amended at any time with respect to any Fund
by Reserves' Board of Trustees, provided that any material amendment of the
terms of this Plan (including a material increase of the fee payable hereunder)
shall become effective only upon the approvals set forth in Section 4.
Section 4. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
1
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Section 5. Reserves will preserve copies of this Plan, Agreements, and
any written reports regarding this Plan presented to the Board of Trustees for a
period of not less than six years.
2
<PAGE>
EXHIBIT I
NATIONS INSTITUTIONAL RESERVES
Nations Cash Reserves
Dated: March 31, 1999
3
EXHIBIT 99.B15(1)
FORM OF ADMINISTRATION AGREEMENT
NATIONS INSTITUTIONAL RESERVES
MARSICO SHARES
Ladies and Gentlemen:
We wish to enter into this Administration Agreement ("Agreement") with
you concerning the provision of administrative support services to
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 Marsico Shares ("Servicing Agents") in one or more of the
portfolios (collectively, the "Funds") listed on Schedule I, as such Schedule
may be amended from time to time, of Nations Institutional Reserves
("Reserves"), an open-end management investment company in the Nations Fund
Family of Funds ("Nations Fund"). The Marsico Shares of the Funds listed on
Schedule I are collectively referred to herein as "Shares." The terms and
conditions of this Agreement are as follows:
1. Provision of Services.
(a) You agree to provide from time to time some or all of the following
administrative support services to Servicing Agents1 (i) processing purchase and
redemption requests for Shares from Servicing Agents and transmitting promptly
net purchase and redemption orders to our distributor or transfer agent; (ii)
providing information periodically to Servicing Agents showing their customers'
positions in Shares; (iii) providing sub-accounting with respect to Shares
beneficially owned by customers of Servicing Agents or the information to us
necessary for sub-accounting; (iv) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Servicing Agents; (v) forwarding to Servicing Agents proxy statements and
proxies; (vi) preparing annual, semi-annual and other similar reports relating
to the Marsico Shares; and (vii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations.
(b) All services rendered hereunder by you shall be performed in a
professional, competent and timely manner.
(c) You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the administrative
support services contemplated hereby. You and your employees will, upon request,
be available during normal business hours to consult with us or our designees
concerning the performance of your responsibilities under this Agreement.
______________________
1
Services may be modified or omitted in the particular case and items
relettered or renumbered.
<PAGE>
(d) By your written acceptance of this Agreement, you represent,
warrant and agree that in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us.
2. Adherence to Applicable Law.
----------------------------
You will perform only those activities which are consistent with
statutes and regulations applicable to you. You will act solely as agent or,
upon the order of Servicing Agents.
3. Representations Regarding Nations Fund and Shares.
--------------------------------------------------
Neither you nor any of your officers, employees or agents are authorized
to make any representations concerning us or the Shares except those contained
in our then current prospectuses and statements of additional information, as
amended or supplemented from time to time, copies of which will be supplied by
us to you, or in such supplemental literature or advertising as may be
authorized by our distributor or us in writing.
4. Status of Administration Agent.
-------------------------------
(a) For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect, except as expressly provided herein.
(b) We may, in our discretion and without notice, suspend or withdraw
the sale of Shares of any and all Funds, including the sale of Shares to you for
the account of any customer or customers of Servicing Agents.
5. Indemnification.
By your written acceptance of this Agreement, you agree to and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you or your officers, employees or agents regarding your
responsibilities hereunder or the purchase, redemption, transfer or registration
of Shares (or orders relating to the same) by or on behalf of Servicing Agents.
6. Compensation.
-------------
(a) In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefor, a
fee as described in the applicable then current prospectuses for the Shares. The
fee rate payable to you may be prospectively increased or decreased by us, in
our sole discretion, at any time upon notice to you.
2
<PAGE>
(b) Compensation payable under this Agreement is subject to, among
other things, the National Association of Securities Dealers, Inc. ("NASD")
Conduct Rules governing receipt by NASD members of service fees from registered
investment companies.
7. Agreement Not Exclusive.
------------------------
We may enter into other similar Agreements with any other person or
persons without your consent.
8. Effective Date and Termination.
-------------------------------
(a) This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee and continues in effect
until terminated.
(b) This Agreement is terminable with respect to any series of
Shares, without penalty, at any time by us (which termination may be by a vote
of a majority of the disinterested Trustees of Reserves) or by you upon written
notice to the other party hereto.
9. Communications.
---------------
All notices and other communications to either you or us will be duly
given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address or number stated herein
(with a confirming copy by mail), or to such other address as either party shall
so provide in writing to the other.
10. Governing Law.
--------------
This Agreement will be construed in accordance with the internal laws of
the Commonwealth of Massachusetts without giving effect to principles of
conflict of laws, and is nonassignable by the parties hereto.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the following address: 111 Center Street, Little Rock, AR; Fax No.
(501) 377-2331; Attention: Mr. Richard H. Blank, Jr.
Very truly yours,
NATIONS INSTITUTIONAL RESERVES
Date: ____________________ By: ______________________
Name: ____________________
Title: ___________________
3
<PAGE>
4
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SCHEDULE I
Nations Cash Reserves
5
