NATIONS INSTITUTIONAL RESERVES, 497, 1999-02-02

NATIONS INSTITUTIONAL RESERVES
497, 1999-02-02

Previous: LEGATO SYSTEMS INC, SC 13G, 1999-02-02

Next: INNOVUS CORP, S-8 POS, 1999-02-02

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

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

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

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

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

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

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

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

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

Daily Class Shares
January 25, 1999

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

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

[NATIONS FUNDS LOGO APPEARS HERE]

<PAGE>

Table Of Contents

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

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

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

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

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

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

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

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

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

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

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

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

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

How Dividends And Distributions Are Made;

Tax Information 17
-----------------------------------------------------

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

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, OR IN THE FUNDS' SAI INCORPORATED HEREIN
BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUNDS OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING BY NATIONS FUNDS OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

2
<PAGE>

About The Funds

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

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

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

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

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

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

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

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

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

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

3
<PAGE>

Expenses Summary

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

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

<TABLE>
<CAPTION>
Nations
Nations Money Nations Nations Nations
Cash Market Treasury Government Municipal
Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Rule 12b-1 Fees .35% .35% .35% .35% .35%
Other Expenses (After Expense Reimbursements) .05% .08% .06% .06% .06%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .80% .80% .80% .80% .80%
</TABLE>

Examples: You would pay the following expenses on a $1,000 investment in the
Daily Class Shares of the indicated Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each time period.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $8 $26 $44 $99
Nations Money Market Reserves $8 $26 $44 $99
Nations Treasury Reserves $8 $26 $44 $99
Nations Government Reserves $8 $26 $44 $99
Nations Municipal Reserves $8 $26 $44 $99
</TABLE>

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

Absent fee waivers and expense reimbursements, "Management fees," "Other
Expenses" and "Total Operating Expenses" for the Daily Class Shares of the
indicated Fund would have been as follows: Nations Cash Reserves .30%, .14% and
1.04% respectively; Nations Money Market Reserves .30%, .19% and 1.09%

4
<PAGE>

respectively; Nations Treasury Reserves .30%, .15% and 1.05% respectively;
Nations Government Reserves .30%, .15% and 1.05% respectively; and Nations
Municipal Reserves .30%, .18% and 1.08% respectively.

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

Objectives

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

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

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

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

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

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

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

How Objectives Are Pursued

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

5
<PAGE>

ments backed by, the securities and other assets owned by such issuers.

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

For temporary defensive purposes during periods when the Adviser believes that
market conditions warrant, the Fund may invest up to 100% of its assets in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), repurchase agreements and
cash.

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

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

Nations Money Market Reserves

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

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

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

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

Nations Treasury Reserves

In pursuing its investment objective, the Fund will invest in direct
obligations issued by the U.S. Treasury, STRIPS, and repurchase agreements and
reverse repurchase agreements involving such obligations. The Fund also may
invest in obligations the principal and interest of which are backed by the
full faith and credit of the United States Government, provided that the Fund
shall, under normal market conditions, invest at least 65% of its

6
<PAGE>

total assets in U.S. Treasury bills, notes and bonds and other instruments
issued directly by the U.S. Government and repurchase agreements secured by
such obligations. The Fund also may lend its portfolio securities to qualified
institutional investors, and may invest in securities issued by other
investment companies, consistent with its investment objective and policies.

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

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

Nations Government Reserves

In pursuing its investment objective, the Fund will invest exclusively in
instruments eligible for acquisition by Nations Treasury Reserves and in U.S.
Government Obligations and repurchase agreements and reverse repurchase
agreements secured by such obligations.

Nations Municipal Reserves

In pursuing its investment objective, the Fund will invest in a diversified
portfolio of obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the interest on
which, in the opinion of counsel to the issuer or bond counsel, is exempt from
regular Federal income tax

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

("Municipal Securities"). At least 80% of the Fund's total assets will be
invested in securities the interest on which is exempt from Federal income
taxes, based on opinions from bond counsel for the issuers.

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

The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the SAI.

The Adviser has discretion to invest up to 20% of the Fund's assets in taxable
money market instruments (consisting of U.S. Government Obligations and
repurchase agreements) and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax. However, the Fund generally intends to be fully invested in Federally tax-
exempt securities.

The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt

7
<PAGE>

obligations are unavailable. The Fund also may invest in securities issued by
other investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.

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

General Investment Policies

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

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

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

8
<PAGE>

that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions
will govern.

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

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

The Funds may not:

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

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

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

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

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

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

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

9
<PAGE>

How Performance Is Shown

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

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

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

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

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

In addition to Daily Class Shares, the Trust offers Liquidity Class, Adviser
Class, Market Class, Capital Class, Investor 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 a Fund's shares. The
Funds' annual report contains additional performance information and is
available upon request without charge from the Funds' distributor or an
investor's agent. To obtain additional information regarding the Funds' other
classes of shares which may be available to you or to obtain the Funds' annual
report, call Nations Funds at the toll-free number indicated on the cover of
this Prospectus.

How The Funds Are Managed

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

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

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

10
<PAGE>

Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of BankAmerica Corporation, a bank holding
company organized as a Delaware corporation. NBAI has its principal offices at
One NationsBank Plaza, Charlotte, North Carolina 28255.

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

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

For the services provided and expenses assumed pursuant to the investment
advisory agreement, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at an annual rate of .15% of the average daily net assets of
each Fund.

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

NBAI, TradeStreet and the co-administrators of the Funds have voluntarily
agreed to waive their fees (and reimburse the Funds for certain expenses) in
order to limit the total annualized operating expenses of the Daily Class
Shares (exclusive of Rule 12b-1 and Shareholder Servicing fees) of the Funds
(as a percentage of average daily net assets) to .20%.

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

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

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

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

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

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

Morrison & Foerster LLP, counsel to Nations Funds and special counsel to
NationsBank, has advised Nations Funds and NationsBank that NationsBank

11
<PAGE>

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

Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as administrator of the
Funds. NBAI serves as co-administrator of the Funds with Stephens. Under the
co-administration arrangements, Stephens and NBAI provide various
administrative, accounting and corporate secretarial services to the Funds.
Stephens and NBAI shall be entitled to receive a combined fee at the annual
rate of .10% of each 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 Funds. 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, the Funds paid their
administrators combined fees, at the indicated rate of the following Funds'
average daily net assets: Nations Cash Reserves -- .01%; Nations Treasury
Reserves -- .01%; Nations Government Reserves -- .01%; and Nations Municipal
Reserves -- .01%.

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

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

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

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

First Data Investor Services Group, Inc. ("First Data"), 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 each Fund's shares.

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

12
<PAGE>

istration 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. Daily Class
Shares may bear certain class specific expenses. Any general expenses of
Nations Institutional Reserves that are not readily identifiable as belonging
to a particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations
Institutional Reserves or in such other manner as the Board of Trustees deems
appropriate.

Organization And History

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

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

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

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

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

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

13
<PAGE>

About Your Investment

How To Buy Shares

Daily Class Shares are offered to retail investors and to NationsBank, Bank of
America, their affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Daily Class Shares is $1,000.

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

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

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

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

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

14
<PAGE>

How To Redeem Shares

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

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

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

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

How To Exchange Shares

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

15
<PAGE>

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

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

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

Shareholder Servicing And Distribution Plans

Shareholder Servicing Plan: The Fund's shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Daily Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of
Trustees, provided that the annual rate may not exceed .25% of the average
daily net asset value of a Fund's Daily Shares. The shareholder services
provided by Servicing Agents may include general shareholder liaison services;
processing purchase, exchange and redemption requests from Customers and
placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from a Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Daily Shares; providing sub-accounting with respect to Daily
Shares beneficially owned by Customers or the information necessary for sub-
accounting; responding to inquiries from Customers concerning their investment
in Daily Shares; arranging for bank wires; and providing such other similar
services as may be reasonably requested.

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

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

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

16
<PAGE>

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

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

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

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

How The Funds Value Their Shares

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

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

How Dividends And Distributions Are Made; Tax Information

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

17
<PAGE>

tion by providing written notice to the Transfer Agent at least 15 days prior
to the change.

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

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

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

Interest on U.S. Government Obligations is exempt from state individual income
taxes when such obligations are held directly. To the extent distributions of a
Fund's net investment income is attributable to interest on such obligations,
such distributions may also be exempt from state individual income taxes in the
hands of shareholders, provided certain conditions are satisfied. Interest
received on repurchase agreements collateralized by U.S. Government Obligations
generally is not exempt from state individual income taxation. Nations Cash
Reserves, Nations Government Reserves, Nations Treasury Reserves and Nations
Money Market Reserves will inform shareholders annually of the percentage of
income and distributions derived from their direct investments in U.S.
Government Obligations. Shareholders should consult their tax advisors to
determine whether any portion of the dividends received from a Fund is exempt
from income tax in their particular states.

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

Your redemptions (including redemptions in-kind) and exchanges of Fund shares
will ordinarily result in taxable capital gain or loss, depending on the amount
you receive for your shares (or are deemed to receive in the case of exchanges)
and the cost of your shares. See "Taxes -- Disposition of Fund Shares" in the
SAI.

Foreign shareholders may be subject to different tax treatment, including
withholding taxes. See "Taxes -- Foreign Shareholders" in the SAI. In certain
circumstances, U.S. residents may also be subject to backup withholding taxes.
See "Taxes -- Backup Withholding" in the SAI.

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

18
<PAGE>

Appendix A -- Portfolio Securities

The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.

Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.

Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAI.

Non-mortgage asset-backed securities include interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt instruments, which are also
known as collateralized obligations and are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt.

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

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

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

19
<PAGE>

to examination by U.S. Government agencies or instrumentalities.

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

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

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

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

Commercial Instruments: Commercial instru- ments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. Nations Cash Reserves
and Nations Money Market Reserves will limit purchases of commercial
instruments to instruments that: (a) if rated by at least two NRSROs, are rated
in the highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) compa-

20
<PAGE>

rable in priority and security to a class of short-term instruments of the same
issuer that has such rating(s), or (ii) of comparable quality to such
instruments as determined by the Board of Trustees on the advice of the
Adviser.

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

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

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

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

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

21
<PAGE>

agreements, time deposits and GICs that do not provide for payment to a Fund
within seven days after notice, and illiquid restricted securities are subject
to the limitation on illiquid securities. In addition, interests in privately
arranged loans acquired by Nations Cash Reserves and Nations Money Market
Reserves may be subject to this limitation.

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

Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or receive
interest, E.G., an exchange of floating-rate payments for fixed-rate payments.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.

The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent a specified index is below a predetermined interest rate, to receive
payments of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser expects to enter into these transactions on
behalf of a Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in
the price of securities the Fund anticipated purchasing at a later date rather
than for speculative purposes. A Fund will not sell interest rate caps or
floors that it does not own.

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

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

22
<PAGE>

on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality which created the issuer.

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

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

Municipal Securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases."
Generally such loans are unrated, in which case they will be determined by the
Adviser to be of comparable quality at the time of purchase to rated
instruments that may be acquired by a Fund. Frequently, privately arranged
loans have variable interest rates and may be backed by a bank letter of
credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand
by the lender. Such loans made by a Fund may have a demand provision permitting
the Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable. To the extent these securities are illiquid, they will be subject
to each Fund's limitation on investments in illiquid securities. Recovery of an
investment in any such loan that is illiquid and payable on demand may depend
on the ability of the municipal borrower to meet an obligation for full
repayment of principal and payment of accrued interest within the demand
period, normally seven days or less (unless a Fund determines that a particular
loan issue, unlike most such loans, has a readily available market). As it
deems appropriate, the Adviser will establish procedures to monitor the credit
standing of each such municipal borrower, including its ability to meet
contractual payment obligations.

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

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

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

23
<PAGE>

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

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

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

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

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

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

24
<PAGE>

exceed 33% of the value of its total assets, which may include cash collateral
received for securities loans. Cash collateral received by a Nations Fund may
be invested in a Nations Funds' money market fund.

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

U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any
of its agencies, authorities or instrumentalities. Direct obligations are
issued by the U.S. Treasury and include all U.S. Treasury instruments. U.S.
Treasury Obligations differ only in their interest rates, maturities and time
of issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored agencies and enterprises
acting under authority of Congress. Although obligations of federal agencies,
authorities and instrumentalities are not debts of the U.S. Treasury, some are
backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association; some
are supported by the right of the issuer to borrow from the U.S. Government,
such as obligations of Federal Home Loan Banks, and some are backed only by the
credit of the issuer itself, such as obligations of the Federal National
Mortgage Association. No assurance can be given that the U.S. Government would
provide financial support to government-sponsored instrumentalities if it is
not obligated to do so by law.

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

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

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

25
<PAGE>

Appendix B -- Description Of Ratings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

26
<PAGE>

unlikely to be affected by reasonably foreseeable events.

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

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

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

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

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

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

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

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

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

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

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

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

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

Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety
is not as high as for issues designated A-1.

27
<PAGE>

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".

28
<PAGE>

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

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

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

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

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

Trust Class Shares
January 25, 1999

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

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

[NATIONS FUNDS LOGO APPEARS HERE]

<PAGE>

Table Of Contents
Prospectus Summary 3
-----------------------------------------------------