NATIONS INSTITUTIONAL RESERVES, 497, 1999-02-10

NATIONS INSTITUTIONAL RESERVES
497, 1999-02-10

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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 Market 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 Market Class Shares are offered to institutional investors that
meet the $250,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.

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

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

This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Market 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, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION ("BANK OF AMERICA") OR ANY OF THEIR AFFILIATES. SUCH SHARES
ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN THE 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

Market Class Shares September 1, 1998
as supplemented on
February 8, 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]

MARKET 2/99
<PAGE>

Table Of Contents
About The Funds Prospectus Summary 3
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Expenses Summary 4
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Objectives 6
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How Objectives Are Pursued 6
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General Investment Policies 9
-----------------------------------------------------

How Performance Is Shown 11
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How The Funds Are Managed 11
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Organization And History 14
-----------------------------------------------------

About Your Investment How To Buy Shares 15
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How To Redeem Shares 16
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How To Exchange Shares 16
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Distribution And Shareholder Servicing Plans 17
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How The Funds Value Their Shares 18
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How Dividends And Distributions Are Made;
Tax Information 19
-----------------------------------------------------

Financial Highlights 20
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Appendix A -- Portfolio Securities 25
-----------------------------------------------------

Appendix B -- Description Of Ratings 32
-----------------------------------------------------

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 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 Market Class Shares is
$250,000.

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<PAGE>

Expenses Summary

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

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

<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Money Market Treasury Government Municipal
Cash Reserves Reserves Reserves Reserves Reserves
<S> <C> <C> <C> <C> <C>
Advisory Fees (After Fee Waivers) .15% .12% .14% .14% .14%
Rule 12b-1 Fees (Absent Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses (After Fee Waivers and
Expense Reimbursements) .05% .10% .06% .06% .06%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Total Operating Expenses (After Fee
Waivers and Expense
Reimbursements) .65% .65% .65% .65% .65%
</TABLE>

4
<PAGE>

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

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Nations Cash Reserves $7 $21 $36 $81
Nations Money Market Reserves $7 $21 $36 $81
Nations Treasury Reserves $7 $21 $36 $81
Nations Government Reserves $7 $21 $36 $81
Nations Municipal Reserves $7 $21 $36 $81
</TABLE>

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in Market Class Shares will
bear either directly or indirectly. Except for Nations Money Market Reserves,
whose expenses are based on estimates, the figures contained in the above
tables are based on amounts incurred during each Fund's most recent fiscal year
and have been adjusted as necessary to reflect current service provider fees.
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 Market Class
Shares. The Trust also offers the Capital Class, Liquidity Class and Adviser
Class Shares of the Funds. Long-term shareholders in a Fund could pay more in
sales charges than the economic equivalent of the maximum front-end sales
charges applicable to mutual funds sold by members of the National Association
of Securities Dealers, Inc. For a more complete description of the Funds'
operating expenses, see "How The Funds Are Managed."

Absent fee waivers and expense reimbursements, "Advisory Fees", "Other
Expenses" and "Total Operating Expenses" for Market Class Shares of the
indicated Fund would be as follows: Nations Cash Reserves -- .30%, .14%, and
.89%, respectively; Nations Money Market Reserves -- .30%, .19% and .94%,
respectively; Nations Treasury Reserves -- .30%, .15% and .90%, respectively;
Nations Government Reserves -- .30%, .15% and .90%, respectively; and Nations
Municipal Reserves -- .30%, .18% and .93%, 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.

5
<PAGE>

Objectives

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

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

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

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

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

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

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

How Objectives Are Pursued

Nations Cash Reserves

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

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

6
<PAGE>

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

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

Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined below) in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Fund invests only in the
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 obligation issued
by state and local governments, their agencies and instrumentalities; and (v)
repurchase agreements and reverse repurchase agreements involving any of the
foregoing obligations. The Fund also may invest in guaranteed investment
contracts and in securities issued by other investment companies, consistent
with its investment objective and policies. The short-term obligations that may
be purchased by the Fund include instruments issued by trusts, partnerships or
other special purpose issuers, including pass-through certificates representing
participations in, or debt instruments backed by, the securities and other
assets owned by such issuers. The Fund will also invest in direct obligations
issued by the U.S. Treasury, separately traded component parts of such
obligations transferable through the Federal book-entry system (known as
Separately Traded Registered Interest and Principal Securities or "STRIPS"), and
repurchase agreements and reverse repurchase agreements involving such
obligations. The Fund also may lend its portfolio securities to qualified
institutional investors, consistent with its investment objective and policies.

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

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

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

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

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

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

7
<PAGE>

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

Nations Government Reserves

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

Nations Municipal Reserves

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

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

The Fund may hold cash reserves pending investment, during temporary defensive
periods, or if, in the opinion of the Adviser, desirable tax-exempt obligations
are unavailable. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund also may invest in instruments
issued by certain trusts, partnerships or other special purpose issuers,
including pass-through certificates representing participations in, or debt
instruments backed

8
<PAGE>

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

Although the Fund is permitted to invest a portion of its assets in second tier
securities (as defined

below) in accordance with Rule 2a-7 under the 1940 Act, the Fund invests only
in first tier securities (as defined below). For more information concerning
the Fund's investments, see "Appendix A."

General Investment Policies

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

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

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

9
<PAGE>

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 that Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.

The Funds may not:

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

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

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

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

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

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

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

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<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 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 Market Class Shares, the Funds offer Liquidity Class, Adviser
Class and Capital Class Shares. Each class of shares may bear different sales
charges, shareholder servicing fees and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. The Funds' annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or an
investor's Agent (as defined below). 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.

11
<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 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 .30% 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 administrator and the co-administrator of the Funds
have voluntarily agreed to waive their fees (and reimburse the Funds for
certain expenses) in order to limit the total annualized operating expenses of
the Market Class Shares (exclusive of Rule 12b-1 and Shareholder Servicing
fees) of the Funds (as a percentage of average daily net assets) to .20%.

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

For the fiscal year ended April 30, 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

12
<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. Stephens
may pay service fees or commissions to selling agents that assist customers in
purchasing Market Class Shares of the Funds. See "Distribution And Shareholder
Servicing Plans."

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

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

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

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

13
<PAGE>

ees and officers); federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, Stephens or First Data under their respective agreements with Nations
Funds; and any extraordinary expenses. Market Class Shares may bear certain
class specific expenses and also bear certain additional shareholder service
and distribution costs. Any general expenses of Nations Institutional Reserves
that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Institutional Reserves or in such
other manner as the Board of Trustees deems appropriate.

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 Market
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.

In addition to Market Class Shares, the Funds also offer Capital Class,
Liquidity Class and Adviser Class Shares. Capital Class Shares, which do not
bear distribution or shareholder servicing fees, are offered to institutional
investors, including NationsBank, its affiliates and correspondents, for the
investment of their own funds or funds for which they act in a fiduciary,
agency or custodial capacity and which meet the $1,000,000 minimum initial
investment requirement. Liquidity Class Shares are offered to institutional
investors which meet the $500,000 minimum initial investment requirement and to
NationsBank and its affiliates and correspondents, for the investment of their
own funds or funds for which they act in a fiduciary, agency or custodial
capacity. Liquidity Class Shares of the Funds bear aggregate distribution and
shareholder servicing fees of up to .85% of the class's average daily net
assets. Adviser Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity
and which meet the $100,000 minimum initial investment requirement. Adviser
Class Shares also bear shareholder servicing fees of up to .25% of the class's
average net assets. A salesperson and any other person or entity entitled to
receive compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over another in a
Fund. Information regarding Capital Class, Liquidity Class and Adviser Class
Shares of the Funds is contained in separate prospectuses that may be obtained
from the Trust's distributor. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact Nations
Funds at 1-800-626-2275.

Each share held entitles the shareholder of record to one vote. As a
Massachusetts business trust, the

14
<PAGE>

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 September 1, 1998, NationsBank and its affiliates possessed or shared
power to dispose or vote with respect to more than 25% of the outstanding
shares of the Trust and therefore could be considered to be a controlling
person of the Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank 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.

About Your Investment

How To Buy Shares

Market Class Shares are offered to institutional investors, including
NationsBank, its affiliates and correspondents, for the investment of their own
funds or funds for which they act in a fiduciary, agency or custodial capacity.
The minimum initial investment in Market Class Shares is $250,000.

The Funds reserve the right in their discretion, to make Market 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 (as defined below). 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 (as defined below) are responsible for transmitting orders
for purchases of Market Class Shares by their Customers (as defined below) and
delivering required funds on a timely basis. Stephens is also responsible for
transmitting orders it receives to Nations Funds.

15
<PAGE>

action. 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.

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

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

How To Exchange Shares

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

The Funds and each of the other funds of Nations Funds may limit the number of
times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Funds upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or mate-

16
<PAGE>

rially revised without notice under certain unusual circumstances.

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

The Market Class Shares exchanged must have a value of at least $250,000.
Nations Funds and Stephens reserve the right to reject any exchange request.
Only shares that may legally be sold in the state of the investor's residence
may be acquired in an exchange. Only shares of a class that is accepting
investments generally may be acquired in an exchange.

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

Distribution And Shareholder

Servicing Plans

Distribution Plan: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan (the "Plan") with respect to the Market Class
Shares of each Fund. Pursuant to the Plan, each Fund may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Fund's Market Class Shares. Payments under the Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trust's Board of Trustees, provided that the annual rate may not exceed
.20% of the average daily net asset value of each Fund's Market Class Shares.
Notwithstanding anything contained in the Plan to the contrary, no Funds shall
be obligated to make any payments under the Plan that exceed the maximum
amounts payable under the Rules of Conduct of the National Association of
Securities Dealers, Inc. Certain state securities laws may require those
financial institutions providing distribution services to register as dealers
pursuant to state law.

The fees payable under the Plan are used primarily to compensate or reimburse
Stephens for distribution services provided by it, and related expenses
incurred, in connection with Market Class Shares, including payments by
Stephens to compensate or reimburse banks, broker/dealers or other financial
institutions that have entered into Sales Support Agreements with Stephens
("Selling Agents"), for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Plan may be made with
respect to: (i) preparation, printing and distribution of prospectuses, sales
literature and advertising materials by Stephens or, as applicable, Selling
Agents, attributable to distribution or sales support activities, respectively;
(ii) commissions, incentive compensation or other compensation to, and expenses
of, account executives or other employees of Stephens or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of Stephens or Selling Agents, attributable
to distribution or sales support activities, respectively; (iv) opportunity
costs relating to the foregoing (which may be calculated as a carrying charge
on Stephens' or Selling Agent's unreimbursed expenses incurred in connection
with distribution or sales support activities, respectively); and (v) any other
costs and expenses relating to distribution or sales support activities. The
overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or Selling Agents' offices
in connection with the sale of Fund shares, including lease costs, the salaries
and

17
<PAGE>

employee benefit costs of administrative, operations and support personnel,
utility costs, communication costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.

Shareholder Servicing Plan: The Trustees have approved a Shareholder Servicing
Plan (the "Servicing Plan") with respect to Market Class Shares of the Funds.
Pursuant to the Servicing Plan, the Trust, on behalf of each Fund, may enter
into shareholder servicing agreements ("Servicing Agreements") with banks,
broker/dealers and other financial institutions, including certain affiliates
of NationsBank ("Servicing Agents" also referred to as "Agents"). Under the
Servicing Agreements, the Servicing Agents will provide various shareholder
support services to their customers ("Customers") that are the owners of Market
Class Shares, including general shareholder liaison services; processing
purchase, exchange and redemption requests from Customers and placing orders
with Stephens or the transfer agent; processing dividend and distribution
payments from the Funds on behalf of Customers; providing information
periodically to customers showing their position in Market Class Shares;
arranging for bank wires; and providing such other similar services as may
reasonably be requested.

The Trust understands that Servicing Agents may charge fees to their Customers
who are the owners of Market Class Shares for additional services provided in
connection with their Customers' accounts. These fees would be in addition to
any amounts which may be received by Servicing Agents under their Servicing
Agreements with the Trust. The Servicing Agreements require Servicing Agents to
disclose to their Customers any compensation payable to the Servicing Agents by
the Trust and any other compensation payable by Customers in connection with
the investment of their assets in Market Class Shares. Customers should read
this Prospectus in light of the terms governing their accounts with their
Servicing Agents.

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

How The Funds Value Their Shares

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

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

18
<PAGE>

How Dividends And Distributions Are Made; Tax Information

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

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

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

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

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 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

19
<PAGE>

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.

Financial Highlights

The following financial information has been derived from the audited financial
statements of Nations Institutional Reserves. PricewaterhouseCoopers LLP is the
independent accountant to Nations Institutional Reserves. The reports of
PricewaterhouseCoopers LLP for the most recent fiscal period of Nations
Institutional Reserves accompany the financial statements and are incorporated
by reference in the SAI, which is available upon request. As of the date of
this Prospectus, no Market Class Shares of Nations Money Market Reserves have
been sold. As a result, certain financial information is not available and thus
not included in this Prospectus. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.

20
<PAGE>

FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD

Nations Cash Reserves

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0519 0.0493
Dividends from net investment income (0.0519) (0.0493)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.33 % 5.04 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $649,503 $333,000
Ratio of operating expenses to average net assets 0.55%** 0.55 %+
Ratio of net investment income to average net assets 5.19 % 4.97 %+
Ratio of operating expenses to average net assets without waivers 0.89 % 0.80 %+
</TABLE>

* Nations Cash Reserves Market Class Shares commenced operations on May 3,
1996.
** The effect of interest expense on the operating expense ratio was less than
0.01%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.

21
<PAGE>

FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD

Nations Treasury Reserves

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0505 0.0481
Dividends from net investment income (0.0505) (0.0481)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.18 % 4.92 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $265,495 $123,396
Ratio of operating expenses to average net assets 0.55 % 0.55 %+
Ratio of net investment income to average net assets 5.06 % 4.85 %+
Ratio of operating expenses to average net assets without waivers 0.90 % 0.81 %+
</TABLE>

* Nations Treasury Reserves Market Class Shares commenced operations on May 3,
1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.

22
<PAGE>

FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD

Nations Government Reserves

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0508 0.0482
Dividends from net investment income (0.0508) (0.0482)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 5.20 % 4.93 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $274,499 $218,499
Ratio of operating expenses to average net assets 0.55 % 0.55 %+(a)
Ratio of net investment income to average net assets 5.08 % 4.87 %+
Ratio of operating expenses to average net assets without waivers 0.90 % 0.84 %+(a)
</TABLE>

* Nations Government Reserves Market Class Shares commenced operations on May
3, 1996.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
(a) The effect of the fees reduced by credits allowed by the custodian on the
operating expense ratio, with and without waivers, was less than 0.01%.

23
<PAGE>

FOR A MARKET CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD

Nations Municipal Reserves

<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
04/30/98 04/30/97*
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0318 0.0301
Dividends from net investment income (0.0318) (0.0301)
Net asset value, end of period $ 1.00 $ 1.00
Total Return++ 3.24 % 3.06 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $92,000 $78,300
Ratio of operating expenses to average net assets 0.55%** 0.55 %+
Ratio of net investment income to average net assets 3.18 % 3.03 %+
Ratio of operating expenses to average net assets without waivers 0.93 % 0.87 %+
</TABLE>

* Nations Municipal Reserves Market Class Shares commenced operations on May
3, 1996.
** The effect of interest expense on the operating expense ratio was 0.02%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.

24
<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

25
<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-

26
<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.

27
<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
Portfolio holding such securities may increase during such period.

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

The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to 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.

28
<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 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.

29
<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

30
<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.

31
<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

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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.

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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".

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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 Adviser 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 Adviser Class Shares are offered to institutional investors that
meet the $100,000 minimum initial investment requirement and to NationsBank,
N.A. ("NationsBank"), its affiliates and correspondents, for the investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity.

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

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

This Prospectus sets forth concisely the information about each Fund that a
prospective purchaser of Adviser 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

Adviser Class Shares
September 1, 1998
as supplemented on
February 8, 1999

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

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

[GRAPHIC OMITTED]

ADVISER 2/99
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