As filed with the Securities and Exchange Commission
on September 1, 2000
Registration No. 33-33144; 811-6030
-----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 32 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 33 [X]
(Check appropriate box or boxes)
------------------------
THE CAPITOL MUTUAL FUNDS
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W., Suite 5500 919 Third Avenue
Washington, D.C. 20006 New York, New York 10022
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C>
[ ] Immediately upon filing pursuant to Rule 485(b); or [ ] on (date) pursuant to Rule 485(b), or
[X] 60 days after filing pursuant to Rule 485(a), or [ ] on (date) pursuant to Rule 485(a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
</TABLE>
<PAGE>
EXPLANATORY NOTE
The Registrant is filing this Post-Effective Amendment No. 32 to the
Trust's Registration Statement for the purpose of adding Institutional Class
Shares to Nations Cash Reserves, Nations Money Market Reserves, Nations Treasury
Reserves, Nations Government Reserves, Nations Municipal Reserves and Nations
California Tax-Exempt Reserves.
<PAGE>
THE CAPITOL MUTUAL FUNDS
D/B/A NATIONS RESERVES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
-------- ----------
<S> <C>
1. Front and Back Cover Pages ........................ Front and Back Cover Pages
2. Risk/Return Summary: Investments, Risks
and Performance.................................... About this Prospectus
3. Risk/Return Summary: Fee Tables.................... About the Funds; Financial Highlights
4. Investment Objectives, Principal
Investment Strategies, and Related Risks........... About the Funds; Other Important
Information
5. Management's Discussion of Fund
Performance........................................ About the Funds
6. Management, Organization, and
Capital Structure.................................. What's Inside; About the Funds;
How the Funds Are Managed;
About your Investment
7. Shareholder Information............................ About the Funds; About your
Investment
8. Distribution Arrangements.......................... Information for Investors
9. Financial Highlights Information................... Financial Highlights; About the Funds
Part B
Item No.
--------
10. Cover Page and Table of Contents................... Cover Page and Table of Contents
11. Fund History....................................... Introduction
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
12. Description of the Fund and Its
Investments and Risks....................................... Additional Information on Portfolio
Investments
13. Management of the Funds..................................... Trustees And Officers; Investment
Advisory, Administration, Custody Transfer
Agency, Shareholder Servicing and
Distribution Agreements
14. Control Persons and Principal
Holders of Securities....................................... Not Applicable
15. Investment Advisory and Other Services...................... Investment Advisory,
Administration, Custody, Transfer Agency,
Shareholder Servicing And Distribution
Agreements
16. Brokerage Allocation and Other Practices.................... Portfolio Transactions and
Brokerage--General Brokerage Policy
17. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory, Administration,
Custody, Transfer Custody, Transfer
Agency, Shareholder Servicing And
Distribution Agreements
18. Purchase, Redemption and Pricing
of Shares................................................... Net Asset Value -- Purchases
And Redemptions; Distributor
19. Taxation of the Fund........................................ Additional Information Concerning
Taxes
20. Underwriters................................................ Investment Advisory,
Administration Custody, Transfer Agency
Shareholder Servicing And Distribution
Agreements; Distributor
21. Calculation of Performance Data............................. Additional Information on
Performance
22. Financial Statements........................................ Independent Accountant and
Reports
</TABLE>
2
<PAGE>
Part C
Item No. Other Information
-------- -----------------
Information required to be included in
Part C is set forth under the
appropriate Item, so numbered, in Part
C of this Document
3
<PAGE>
(Picture of kayakers appears here)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS DATED SEPTEMBER 1, 2000
SUBJECT TO COMPLETION
Money
Market Funds
Prospectus -- Institutional Class Shares
October 31, 2000
Nations
Cash Reserves
Nations Money Market Reserves
Nations
Treasury Reserves
Nations Government Reserves
Nations
Municipal Reserves
Nations
California
Tax-Exempt Reserves
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Not FDIC Insured
May Lose Value
No Bank Guarantee
(Nations Funds logo appears here)
<PAGE>
An overview of the Funds
--------------------------------------------------------------------------------
Terms used in this prospectus
In this prospectus, we, us and our refer to the Nations Funds
family (Nations Funds or Nations Funds Family). Some other
important terms we've used may be new to you. These are printed in
italics where they first appear in a section and are described in
Terms used in this prospectus.
[Graphic appears here]
You'll find Terms used in
this prospectus on page 36.
Your investment in these Funds is not a bank deposit and is not
insured or guaranteed by Bank of America, N.A. (Bank of America),
the Federal Deposit Insurance Corporation (FDIC) or any other
government agency. Your investment may lose money.
Affiliates of Bank of America are paid for the services they
provide to the Funds.
This booklet, which is called a prospectus, tells you about some Nations Funds
Money Market Funds. Please read it carefully, because it contains information
that's designed to help you make informed investment decisions.
This prospectus offers Institutional Class Shares of the Funds. This class of
shares is designed primarily for institutional investors that purchase their
shares through financial institutions or intermediaries. Please turn to page
27 for more information about who is eligible to buy this class of shares.
About the Funds
The Money Market Funds seek to provide income while protecting the principal
of your original investment by investing in money market instruments.
Money market instruments include short-term debt securities that are U.S.
government issued or guaranteed or have relatively low risk. Your original
investment and your return aren't guaranteed, however, and returns will vary
as short-term interest rates change. Over time, the return on these money
market funds may be lower than the return on other kinds of mutual funds or
investments.
Are these Funds right for you?
Not every Fund is right for every investor. When you're choosing a Fund to
invest in, you should consider things like your investment goals, how much
risk you can accept and how long you're planning to hold your investment.
The Money Market Funds may be suitable for you if:
o you're looking for a relatively low risk investment with stability of
principal
o you have short-term income needs
They may not be suitable for you if:
o you're looking for higher returns
o you're more comfortable with bank deposits that are FDIC-insured
You'll find a discussion of each Fund's principal investments, strategies and
risks in the Fund descriptions that start on page 4.
For more information
If you have any questions about the Funds, please call us at 1.800.626.2275 if
you're an institutional investor, or 1.800.321.7854 if you're an individual
investor. You can also contact your investment professional.
You'll find more information about the Funds in the Statement of Additional
Information (SAI). The SAI includes more detailed information about each
Fund's investments, policies, performance and management, among other things.
Please turn to the back cover to find out how you can get a copy.
2
<PAGE>
What's inside
--------------------------------------------------------------------------------
Banc of America Advisors, Inc.
Banc of America Advisors, Inc. (BAAI) is the investment adviser
to each of the Funds. BAAI is responsible for the overall
management and supervision of the investment management of each
Fund. BAAI and Nations Funds have engaged a sub-adviser -- Banc of
America Capital Management, Inc. (BACAP), which is responsible for
the day-to-day investment decisions for each of the Funds.
You'll find more about
BAAI and BACAP
starting on page 25.
<TABLE>
<S> <C>
[Graphic appears here] About the Funds
Nations Cash Reserves 4
Sub-adviser: BACAP
-----------------------------------------
Nations Money Market Reserves 7
Sub-adviser: BACAP
-----------------------------------------
Nations Treasury Reserves 10
Sub-adviser: BACAP
-----------------------------------------
Nations Government Reserves 13
Sub-adviser: BACAP
-----------------------------------------
Nations Municipal Reserves 16
Sub-adviser: BACAP
-----------------------------------------
Nations California Tax-Exempt Reserves 20
Sub-adviser: BACAP
-----------------------------------------
Other important information 24
-----------------------------------------
How the Funds are managed 25
[Graphic appears here) About your investment
Information for investors
Buying, selling and exchanging shares 27
Shareholder administration fees 32
Distributions and taxes 33
-----------------------------------------
Terms used in this prospectus 36
-----------------------------------------
Where to find more information back cover
</TABLE>
3
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Taxable Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
The Fund is listed on the National Association of Insurance
Commissioners' Approved List of Money Market Mutual Funds.
First-tier securities
A first-tier security is a short-term debt security that's an
eligible investment for money market funds. It's "first-tier"
because it's been given the highest credit rating by a nationally
recognized statistical rating organization or is considered to be
of comparable quality.
Nations Cash Reserves
[Graphic appears here] Investment objective
The Fund seeks to preserve principal value and maintain a high degree
of liquidity while providing current income.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a diversified
portfolio of high quality money market instruments that, at the time of
investment, are considered to have remaining maturities of 397 days or
less.
The Fund will only buy first-tier securities. These securities include
primarily:
o commercial paper
o bank obligations
o short-term debt securities, including instruments issued by certain trusts,
partnerships or other special purpose issuers, like pass-through
certificates representing participations in, or instruments backed by,
the securities and other assets owned by these issuers
o short-term taxable municipal securities
o repurchase agreements secured by first-tier securities or U.S. government
obligations
The Fund may also invest in other money market funds, consistent with its
investment objective and strategies. When the team believes market conditions
warrant, the Fund may invest more than 25% of its assets in U.S. dollar
denominated bank obligations, including obligations of U.S. banks, foreign
branches of U.S. banks and U.S. branches of foreign banks,
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
4
<PAGE>
You'll find more about
other risks of investing in
this Fund starting on
page 24 and in the SAI.
[Graphic appears here] Risks and other things to consider
Nations Cash Reserves has the following risks:
o Investment strategy risk - Although the Fund tries to maintain a share
price of $1.00, an investment in the Fund may lose money. An investment
in this Fund is not a bank deposit and is not insured or guaranteed by
Bank of America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the Fund
holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Capital Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
Chart appears below:
1991 5.91%
1992 3.55%
1993 2.89%
1994 3.90%
1995 6.02%
1996 5.44%
1997 5.62%
1998 5.58%
1999 5.22%
* Year-to-date return as of June 30, 2000: 3.03%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1991: 1.68%
Worst: 4th quarter 1993: 0.70%
</TABLE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
Since
1 year 5 years inception*
<S> <C> <C> <C>
Capital Class Shares 5.22% 5.58% 4.99%
</TABLE>
*The inception date of Capital Class Shares is October 10, 1990.
5
<PAGE>
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.13%
----
Total annual Fund operating expenses 0.32%
Fee waivers and/or reimbursements 0.08%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1)The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end
of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $95 $172 $398
</TABLE>
6
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Taxable Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
The Fund is listed on the National Association of Insurance
Commissioners' Approved List of Money Market Mutual Funds
First-tier securities
A first-tier security is a short-term debt security that's an
eligible investment for money market funds. It's "first-tier"
because it's been given the highest credit rating by a nationally
recognized statistical rating organization or is considered to be
of comparable quality.
Nations Money Market Reserves
[Graphic appears here] Investment objective
The Fund's investment objective is to provide a high level of current
income consistent with liquidity, the preservation of capital and a
stable net asset value.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a diversified
portfolio of high quality money market instruments that, at the time of
investment, are considered to have remaining maturities of 397 days or
less.
The Fund will only buy first-tier securities. These securities include
primarily:
o commercial paper
o bank obligations
o short-term debt securities, including instruments issued by certain trusts,
partnerships or other special purpose issuers, like pass-through
certificates representing participations in, or instruments backed by, the
securities and other assets owned by these issuers
o short-term taxable municipal securities
o repurchase agreements secured by first-tier securities or U.S. government
obligations
The Fund may also invest in other money market funds, consistent with its
investment objective and strategies. When the team believes market conditions
warrant, the Fund may invest more than 25% of its assets in U.S. dollar
denominated bank obligations, including obligations of U.S. banks, foreign
branches of U.S. banks and U.S. branches of foreign banks.
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
7
<PAGE>
You'll find more about
other risks of investing in
this Fund starting on
page 24 and in the SAI.
[Graphic appears here] Risks and other things to consider
Nations Money Market Reserves has the following risks:
o Investment strategy risk - Although the Fund tries to maintain a share
price of $1.00, an investment in the Fund may lose money. An investment
in this Fund is not a bank deposit and is not insured or guaranteed by
Bank of America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the Fund
holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Capital Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
Chart appears below:
1990 8.25%
1991 6.36%
1992 4.02%
1993 3.07%
1994 4.02%
1995 5.78%
1996 5.28%
1997 5.62%
1998 5.55%
1999 5.21%
* Year-to-date return as of June 30, 2000: 3.04%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 3rd quarter 1990: 2.01%
Worst: 2nd quarter 1993: 0.75%
</TABLE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Capital Class Shares 5.21% 5.49% 5.31%
</TABLE>
8
<PAGE>
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.17%
----
Total annual Fund operating expenses 0.36%
Fee waivers and/or reimbursements 0.12%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1)The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end
of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $104 $190 $444
</TABLE>
9
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Taxable Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
The Fund is listed on the National Association of Insurance
Commissioners' Approved List of Money Market Mutual Funds.
First-tier securities
A first-tier security is a short-term debt security that's an
eligible investment for money market funds. It's "first-tier"
because it's been given the highest credit rating by a nationally
recognized statistical rating organization or is considered to be
of comparable quality.
Nations Treasury Reserves
[Graphic appears here] Investment objective
The Fund seeks to preserve principal value and maintain a high degree of
liquidity while providing current income.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a diversified
portfolio of high quality money market instruments that, at the time of
investment, are considered to have remaining maturities of 397 days or
less.
The Fund will only buy first-tier securities. These securities include
primarily:
o U.S. Treasury obligations
o repurchase agreements and reverse repurchase agreements secured by U.S.
Treasury obligations
o obligations whose principal and interest are backed by the U.S. government
The Fund may invest in other money market funds that invest in these
instruments, consistent with its investment objective and strategies.
The Fund normally invests at least 65% of its assets in U.S. Treasury
obligations, and repurchase agreements secured by U.S. Treasury obligations.
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
10
<PAGE>
You'll find more about
other risks of investing in
this Fund starting on
page 24 and in the SAI.
Risks and other things to consider
Nations Treasury Reserves has the following risks:
o Investment strategy risk - Although the Fund tries to maintain a share
price of $1.00, an investment in the Fund may lose money. An investment
in this Fund is not a bank deposit and is not insured or guaranteed by
Bank of America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the
Fund holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Capital Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
[Graphic appears here]
Chart appears below:
1992 3.67%
1993 2.98%
1994 4.03%
1995 5.87%
1996 5.33%
1997 5.47%
1998 5.39%
1999 4.93%
* Year-to-date return as of June 30, 2000: 2.87%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 1.47%
Worst: 2nd quarter 1993: 0.72%
</TABLE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
Since
1 year 5 years inception*
<S> <C> <C> <C>
Capital Class Shares 4.93% 5.40% 4.79%
</TABLE>
*The inception date of Capital Class Shares is January 11, 1991.
11
<PAGE>
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.12%
----
Total annual Fund operating expenses 0.31%
Fee waivers and/or reimbursements 0.07%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1)The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2)The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end
of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $93 $167 $386
</TABLE>
12
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Taxable Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
First-tier securities
A first-tier security is a short-term debt security that's an
eligible investment for money market funds. It's "first-tier"
because it's been given the highest credit rating by a nationally
recognized statistical rating organization or is considered to be
of comparable quality.
Nations Government Reserves
[Graphic appears here] Investment objective
The Fund seeks to preserve principal value and maintain a high degree
of liquidity while providing current income.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a diversified
portfolio of high quality money market instruments that, at the time of
investment, are considered to have remaining maturities of 397 days or
less.
The Fund will only buy first-tier securities. These securities include
primarily U.S. government obligations and U.S. Treasury obligations, the
interest on which is generally free from state income tax.
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
13
<PAGE>
You'll find more about
other risks of investing in
this Fund starting on
page 24 and in the SAI.
[Graphic appears here] Risks and other things to consider
Nations Government Reserves has the following risks:
o Investment strategy risk - Although the Fund tries to maintain a share
price of $1.00, an investment in the Fund may lose money. An investment
in this Fund is not a bank deposit and is not insured or guaranteed by
Bank of America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the
Fund holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
o Tax considerations - Most of the distributions paid by the Fund come
from interest on U.S. government and U.S. Treasury securities, which is
generally free from state income tax, but may be subject to federal
income, local and other taxes. Any portion of a distribution that comes
from income paid on other kinds of securities or from realized capital
gains is generally subject to federal, state and local taxes. You should
consult with your tax adviser to determine whether the distributions
from the Fund are exempt from state income or local taxation in your own
state.
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Capital Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
Chart appears below:
1992 3.53%
1993 2.74%
1994 3.74%
1995 5.89%
1996 5.33%
1997 5.50%
1998 5.42%
1999 5.03%
* Year-to-date return as of June 30, 2000: 2.96%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 1.48%
Worst: 2nd quarter 1993: 0.67%
</TABLE>
14
<PAGE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
Since
1 year 5 years inception*
<S> <C> <C> <C>
Capital Class Shares 5.03% 5.43% 4.61%
</TABLE>
*The inception date of Capital Class Shares is January 17, 1991.
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.13%
----
Total annual Fund operating expenses 0.32%
Fee waivers and/or reimbursements 0.08%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end
of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $95 $172 $398
</TABLE>
15
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Tax-Exempt Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
First-tier securities
A first-tier security is a short-term debt security that's an
eligible investment for money market funds. It's "first-tier"
because it's been given the highest credit rating by a nationally
recognized statistical rating organization or is considered to be
of comparable quality.
Nations Municipal Reserves
[Graphic appears here] Investment objective
The Fund seeks to preserve principal value and maintain a high degree
of liquidity while providing current income exempt from federal income
taxes.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a diversified
portfolio of high quality money market instruments that, at the time of
investment, are considered to have remaining maturities of 397 days or
less.
The Fund will only buy first-tier securities. The Fund normally invests at
least 80% of its assets in municipal securities, which pay interest that is
free from federal income and alternative minimum taxes. The Fund invests in
municipal securities that, at the time of investment, are considered by the
team to have minimal credit risk and to be of high quality.
The Fund may invest up to 20% of its assets in:
o municipal securities that finance private projects, called private activity
bonds
o money market instruments, including repurchase agreements
The Fund may also invest in instruments issued by certain trusts, partnerships
or other special purpose issuers, including pass-through certificates
representing participations in, or instruments backed by, the securities and
other assets owned by these issuers. The Fund may invest in other money market
funds, consistent with its investment objective and strategies.
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument,
and structural analysis, which includes evaluating the arrangements
between the municipality and others involved in the issue of an
instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
16
<PAGE>
You'll find more about
other risks of investing in
this Fund starting on
page 24 and in the SAI.
[Graphic appears here] Risks and other things to consider
Nations Municipal Reserves has the following risks:
o Investment strategy risk - Although the Fund tries to maintain a share
price of $1.00, an investment in the Fund may lose money. An investment
in this Fund is not a bank deposit and is not insured or guaranteed by
Bank of America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the
Fund holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
o Holding cash - The Fund may hold cash while it's waiting to make an
investment, as a temporary defensive strategy, or if the team believes
that attractive tax-exempt investments are not available. Any cash the
Fund holds does not earn income.
o Tax considerations - Most of the distributions paid by the Fund come
from interest on municipal securities, which is generally free from
federal income tax, but may be subject to state and local taxes. Any
portion of a distribution that comes from income from non-exempt sources
such as income from other kinds of securities or from realized capital
gains is generally subject to federal, state and local taxes.
Distributions paid to you from the Fund's interest on private activity
bonds may be subject to the federal alternative minimum tax. Shares of
Nations Municipal Reserves would not be suitable investments for
tax-deferred plans and tax-exempt investors.
17
<PAGE>
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Capital Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
Chart appears below:
1991 4.17%
1992 2.61%
1993 2.02%
1994 2.59%
1995 3.80%
1996 3.44%
1997 3.60%
1998 3.39%
1999 3.16%
* Year-to-date return as of June 30, 2000: 1.92%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 1st quarter 1991: 1.10%
Worst: 1st quarter 1994: 0.45%
</TABLE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
Since
1 year 5 years inception*
<S> <C> <C> <C>
Capital Class Shares 3.16% 3.48% 3.25%
</TABLE>
*The inception date of Capital Class Shares is October 23, 1990.
18
<PAGE>
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.14%
----
Total annual Fund operating expenses 0.33%
Fee waivers and/or reimbursements 0.09%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end of
those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001, and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $97 $176 $409
</TABLE>
19
<PAGE>
About the sub-adviser
BACAP is this Fund's sub-adviser. BACAP's Tax-Exempt Money Market
Management Team makes the day-to-day investment decisions for the
Fund.
You'll find more about
BACAP on page 26.
This Fund, like all money market funds, is subject to certain
investment limitations. These are described in Other important
information.
Nations California Tax-Exempt Reserves
[Graphic appears here] Investment objective
The Fund seeks current income exempt from federal income tax and
California state personal income tax, a stable share price, and daily
liquidity.
[Graphic appears here] Principal investment strategies
The Fund pursues its objective by generally investing in a portfolio of
high quality money market instruments that, at the time of investment,
are considered to have remaining maturities of 397 days or less.
The Fund normally invests at least 80% of its assets in securities that pay
interest that is free from federal income and alternative minimum taxes and
California state personal income tax. These securities are issued by or on
behalf of the State of California, its political subdivisions, agencies,
instrumentalities and authorities, and other qualified issuers.
The Fund may invest up to 20% of its assets in:
o municipal securities that finance private projects, called private activity
bonds
o money market instruments, including repurchase agreements
The Fund may also invest in instruments issued by certain trusts, partnerships
or other special purpose issuers, including pass-through certificates
representing participations in, or instruments backed by, the securities and
other assets owned by these issuers. The Fund may invest in other money market
funds, consistent with its investment objective and strategies.
The team tries to maintain a constant net asset value of $1.00 per share for
the Fund. The team uses extensive research, including economic, technical and
security analysis to select individual investments.
o Economic analysis includes evaluating local, national and global economic
conditions, as well as interest rate movements.
o Technical analysis includes identifying categories of money market
instruments that offer the highest yields and assessing the market for
potential investments.
o Security analysis includes evaluating the credit quality of an instrument,
and structural analysis, which includes evaluating the arrangements
between the municipality and others involved in the issue of an instrument.
Securities are normally held to maturity, but the team may sell a security
before it matures to meet cash flow needs, to manage the portfolio's maturity,
if the team determines that the security is no longer a suitable investment,
and for other reasons.
20
<PAGE>
You'll find more about
other risks of investing
in this Fund starting on
page 24 and in the SAI.
[Graphic appears here] Risks and other things to consider
Nations California Tax-Exempt Reserves has the following risks:
o Investment strategy risk - This Fund is considered to be non-diversified
because it invests most of its assets in securities that pay interest
that is free from personal income tax in one state. The value of the
Fund and the amount of interest it pays could also be affected by the
financial conditions of the state, its public authorities and local
governments. Although the Fund tries to maintain a share price of $1.00,
an investment in the Fund could lose money. An investment in this Fund
is not a bank deposit and is not insured or guaranteed by Bank of
America, the FDIC or any other government agency.
o Income/principal payment risk - The Fund's ability to pay distributions
depends on the creditworthiness of the issuers of the securities the
Fund holds. The Fund may not be able to pay distributions, or could lose
money, if the issuer of a security is unable to pay interest or repay
principal when it's due.
o Holding cash - The Fund may hold cash while it's waiting to make an
investment, as a temporary defensive strategy, or if the team believes
that attractive tax-exempt investments are not available. Any uninvested
cash the Fund holds does not earn income.
o Tax considerations - Most of the distributions paid by the Fund come
from interest on municipal securities, which is generally free from
federal income tax and California state personal income tax, but may be
subject to other state and local taxes and the federal alternative
minimum tax. Any portion of a distribution that comes from income from
non-exempt sources such as income from other kinds of securities or from
realized capital gains is generally subject to federal, state and local
taxes. Distributions paid to you from the Fund's interest on private
activity bonds may be subject to the federal alternative minimum tax.
Shares of Nations California Tax-Exempt Reserves would not be suitable
investments for tax-deferred investments and tax-exempt investors.
21
<PAGE>
Many things affect a Fund's performance, including market
conditions, the composition of the Fund's holdings and Fund
expenses.
The returns shown are for a class not offered in this prospectus
that has similar annual returns because the shares are invested in
the same portfolio of securities. The annual returns differ only
to the extent that the classes do not have the same expenses.
For the Fund's current 7-day yield, please call us at
1.800.626.2275 if you're an institutional investor, or
1.800.321.7854 if you're an individual investor. You can also
contact your investment professional.
[Graphic appears here] A look at the Fund's performance
The following bar chart and table show you how the Fund has performed
in the past, and can help you understand the risks of investing in the
Fund. A Fund's past performance is no guarantee of how it will perform
in the future.
Year by year total return (%) as of December 31 each year*
The bar chart shows you how the performance of the Fund's Adviser Class
Shares has varied from year to year. These returns do not reflect
deductions of sales charges or account fees, if any, and would be lower
if they did.
Chart appears below:
1994 2.37%
1995 3.40%
1996 2.96%
1997 3.14%
1998 2.82%
1999 2.60%
*Year-to-date return as of June 30, 2000: 1.50%
Best and worst quarterly returns during this period
<TABLE>
<S> <C>
Best: 2nd quarter 1995: 0.88%
Worst: 1st quarter 1994: 0.44%
</TABLE>
Average annual total return as of December 31, 1999
<TABLE>
<CAPTION>
Since
1 year 5 years inception*
<S> <C> <C> <C>
Adviser Class Shares 2.60% 2.98% 2.78%
</TABLE>
*The inception date of Adviser Class Shares is March 1, 1993.
22
<PAGE>
There are two kinds of fees -- shareholder fees you pay directly,
and annual fund operating expenses that are deducted from a fund's
assets.
Total net expenses are actual expenses paid by the Fund after
waivers and/or reimbursements.
[Graphic appears here] What it costs to invest in the Fund
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Shareholder fees
(Fees paid directly from your investment) Institutional Class Shares
<S> <C>
Maximum sales charge (load) imposed on purchases none
Maximum deferred sales charge (load) none
Annual Fund operating expenses(1)
(Expenses that are deducted from the Fund's assets)
Management fees 0.15%
Shareholder administration fees 0.04%
Other expenses 0.13%
----
Total annual Fund operating expenses 0.32%
Fee waivers and/or reimbursements 0.08%
----
Total net expenses(2) 0.24%
====
</TABLE>
(1) The figures contained in the above table are based on amounts incurred
during the Fund's most recent fiscal year and have been adjusted, as
needed, to reflect current service provider fees.
(2) The Fund's investment adviser and/or some of its other service
providers have agreed to waive fees and/or reimburse expenses until
July 31, 2001. The figure shown here is after waivers and/or
reimbursements. There is no guarantee that these waivers and/or
reimbursements will continue after this date.
This is an example only. Your actual costs could be higher or
lower, depending on the amount you invest, and on the Fund's
actual expenses and performance.
Example
This example is intended to help you compare the cost of investing in
this Fund with the cost of investing in other mutual funds.
This example assumes:
o you invest $10,000 in Institutional Class Shares of the Fund for the
time periods indicated and then sell all of your shares at the end
of those periods
o you reinvest all dividends and distributions in the Fund
o your investment has a 5% return each year
o the Fund's operating expenses remain the same as shown in the table
above
o the waivers and/or reimbursements shown above expire July 31, 2001 and
are not reflected in the 3, 5 and 10 year examples
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Institutional Class Shares $25 $95 $172 $398
</TABLE>
23
<PAGE>
[Graphic appears here] Other important information
You'll find specific information about each Fund's principal investments,
strategies and risks in the descriptions starting on page 4. The following are
some other risks and information you should consider before you invest:
o Special rules for money market funds - Money market funds must comply
with Rule 2a-7 under the Investment Company Act of 1940 (1940 Act). Rule
2a-7 sets out certain limits on investments, which are designed to help
protect investors from risk of loss. These limits apply at the time an
investment is made. The Funds, like all money market funds:
o may only invest in securities with a remaining maturity of 397 days or
less, or that have maturities longer than 397 days but have demand,
interest rate reset features or guarantees that are 397 days or less
o must maintain an average dollar-weighted maturity of 90 days or less
o may normally invest no more than 5% of their assets in a single
security, other than U.S. government securities; however, they may
invest up to 25% of their assets in a first-tier security for up to
three business days (except for Nations California Tax-Exempt Reserves)
o may generally only invest in U.S. dollar denominated instruments that
are determined to have minimal credit risk and are first-tier
securities, except for Nations California Tax-Exempt Reserves, which
also may invest in second-tier securities.
o Changing investment objectives and policies - The investment objective
and certain investment policies of any Fund cannot be changed without
shareholder approval (except for Nations California Tax-Exempt
Reserves).
o Investing defensively - A Fund may temporarily hold investments that are
not part of its investment objective or its principal investment
strategies to try to protect it during a market or economic downturn or
because of political or other conditions. A Fund may not achieve its
investment objective while it is investing defensively. Any cash a Fund
holds for defensive or other reasons does not earn income.
24
<PAGE>
Banc of America Advisors, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
[Graphic appears here] How the Funds are managed
Investment adviser
BAAI is the investment adviser to over 60 mutual fund portfolios in the
Nations Funds Family, including the Money Market Funds described in this
prospectus.
BAAI is a registered investment adviser. It's a wholly-owned subsidiary of
Bank of America, which is owned by Bank of America Corporation.
Nations Funds pays BAAI an annual fee for its investment advisory services.
The fee is calculated as a percentage of the average daily net assets of each
Fund and is paid monthly. BAAI uses part of this money to pay investment
sub-advisers for the services they provide to each Fund.
BAAI has agreed to waive fees and/or reimburse expenses for certain Funds
until July 31, 2001. You'll find a discussion of any waiver and/or
reimbursement in the Fund descriptions. There is no assurance that BAAI will
continue to waive and/or reimburse any fees and/or expenses after this date.
The following chart shows the maximum advisory fees BAAI can receive, along
with the actual advisory fees it received during the Funds' last fiscal year,
after waivers and/or reimbursements:
Annual investment advisory fee, as a % of average daily net assets
<TABLE>
<CAPTION>
Maximum Actual fee
advisory paid last
fee(1) fiscal year
<S> <C> <C>
Nations Cash Reserves 0.15% 0.16%
Nations Money Market Reserves 0.15% 0.11%
Nations Treasury Reserves 0.15% 0.16%
Nations Government Reserves 0.15% 0.15%
Nations Municipal Reserves 0.15% 0.14%
Nations California Tax-Exempt Reserves 0.15% 0.15%
</TABLE>
(1) These fees are the current contract levels, which in some cases have been
reduced from the contract levels that were in effect during the last fiscal
year.
25
<PAGE>
Investment sub-adviser
Nations Funds and BAAI have engaged an investment sub-adviser, Banc of America
Capital Management, Inc., to provide day-to-day portfolio management for the
Funds. BACAP functions under the supervision of BAAI and the Boards of
Directors/Trustees of Nations Funds.
Banc of America Capital Management, Inc.
One Bank of America Plaza
Charlotte, North Carolina 28255
Banc of America Capital Management, Inc.
BACAP, the successor to TradeStreet Investment Associates, Inc., is a
registered investment adviser and a wholly-owned subsidiary of Bank of
America. Its management expertise covers all major domestic asset classes,
including equity and fixed income securities and money market instruments.
Currently managing more than $120 billion, BACAP has over 200 institutional
clients and is sub-adviser to more than 50 mutual funds in the Nations Funds
Family. BACAP takes a team approach to investment management. Each team has
access to the latest technology and analytical resources.
BACAP is the investment sub-adviser to the Funds shown in the table below. The
table also tells you which internal BACAP asset management team is responsible
for making the day-to-day investment decisions for each Fund.
<TABLE>
<CAPTION>
Fund BACAP Team
<S> <C>
Nations Cash Reserves Taxable Money Market Management Team
Nations Money Market Reserves Taxable Money Market Management Team
Nations Treasury Reserves Taxable Money Market Management Team
Nations Government Reserves Taxable Money Market Management Team
Nations Municipal Reserves Tax-Exempt Money Market Management Team
Nations California Tax-Exempt Reserves Tax-Exempt Money Market Management Team
</TABLE>
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Other service providers
The Funds are distributed and co-administered by Stephens Inc., a registered
broker/dealer.
BAAI is also co-administrator of the Funds, and assists in overseeing the
administrative operations of the Funds. The Funds pay BAAI and Stephens a
combined fee of 0.10% for their services, plus certain out-of-pocket expenses.
The fee is calculated as an annual percentage of the average daily net assets
of the Funds, and is paid monthly. The Funds also pay shareholder
administration fees to BAAI or financial institutions for providing services
to investors.
PFPC Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its
responsibilities include processing purchases, sales and exchanges,
calculating and paying distributions, keeping shareholder records, preparing
account statements and providing customer service.
26
<PAGE>
About your investment
--------------------------------------------------------------------------------
When you sell shares of a mutual fund, the fund is effectively
"buying" them back from you. This is called a redemption.
[Graphic appears here] Buying, selling and exchanging shares
This prospectus offers Institutional Class Shares of the Funds. Here are some
general rules about this class of shares:
o Institutional Class Shares are available to institutional investors on a
direct basis or through financial institutions or intermediaries. These
include:
o Bank of America and certain of its affiliates
o certain other financial institutions and intermediaries, including financial
planners and investment advisers
o The minimum initial investment is $750,000. Financial institutions or
intermediaries can total the investments they make on behalf of their
clients to meet the minimum initial investment amount. Client accounts for
which the financial institution or intermediary no longer acts as
fiduciary, agent or custodian may no longer be eligible to purchase or hold
Institutional Class Shares.
o There is no minimum amount for additional investments.
o There are no sales charges for buying, selling or exchanging these shares.
You'll find more information about buying, selling and exchanging
Institutional Class Shares on the pages that follow. You should also ask your
financial institution or intermediary about its limits, fees and policies for
buying, selling and exchanging shares, which may be different from those
described here, and about its related services and programs.
The Funds also offer other classes of shares, with different features and
expense levels, which you may be eligible to buy. If you have questions about
buying, selling or exchanging, or you need help placing an order, please call
us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if
you're an individual investor. You can also contact your investment
professional.
27
<PAGE>
A business day is any day that the Federal Reserve Bank of New
York is open. The Money Market Funds reserve the right to close
early on business days preceding national holidays, if the primary
government securities dealers have closed early and/or if the Bond
Market Association recommends that the securities markets close
early.
The Federal Reserve Bank of New York is closed on weekends and on
the following national holidays: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day.
How shares are priced
All transactions are based on the price of a Fund's shares -- or its net asset
value per share. We calculate net asset value per share at the following times
(unless the Fund closes early):
o 5:00 p.m. Eastern time each business day for each share class of Nations
Cash Reserves, Nations Money Market Reserves and Nations Treasury Reserves
o 12:00 noon Eastern time each business day for each share class of Nations
Government Reserves and Nations Municipal Reserves
o 10:30 a.m. Eastern time each business day for each share class of Nations
California Tax-Exempt Reserves
First, we calculate the net asset value for each class of a Fund by
determining the value of the Fund's assets in the class and then subtracting
its liabilities. Next, we divide this amount by the number of shares that
investors are holding in the class.
Although we try to maintain a net asset value per share of $1.00 for the
Funds, we can't guarantee that we will be able to do so.
Valuing securities in a Fund
The value of a Fund's assets is based on the total market value of all of the
securities it holds. We use the amortized cost method, which approximates
market value, to value the assets in the Money Market Funds.
How orders are processed
Orders to buy, sell or exchange shares are processed on business days. Orders
received by Stephens, PFPC or their agents by the following times on a
business day (unless the Fund closes early) will receive that day's net asset
value per share:
o 5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money Market
Reserves and Nations Treasury Reserves, except:
o Orders must be received for Nations Money Market Reserves and Nations
Treasury Reserves by 3:00 p.m. Eastern time on the last business day
of each calendar quarter and business days that precede the national
holidays observed by these Funds
o Orders must be received for Nations Cash Reserves by 3:00 p.m. Eastern
time on the last business day of the calendar year
o 12:00 noon Eastern time for Nations Government Reserves and Nations
Municipal Reserves
o 10:30 a.m. Eastern time for Nations California Tax-Exempt Reserves
Investors are encouraged to place orders to sell as early in the day as
possible. Orders received after these times will receive the next business
day's net asset value per share. The business day that applies to an order is
also called the trade date. We may refuse any order to buy or exchange shares.
If this happens, we'll return any money we've received.
28
<PAGE>
[Graphic appears here] Buying shares
Here are some general rules for buying shares:
o Investors buy Institutional Class Shares at net asset value per
share.
o We must receive payment by the following times one the business day
Stephens, PFPC or their agents receive the order (unless the Fund
closes early):
o 5:00 p.m. Eastern time for Nations Cash Reserves, Nations Money
Market Reserves and Nations Treasury Reserves, except
o Payment must be received for Nations Money Market Reserves and
Nations Treasury Reserves by 4:00 p.m. Eastern time on the
last business day of each calendar quarter and business days
that precede the national holidays observed by these Funds
o Payment must be received for Nations Cash Reserves by 4:00 p.m.
Eastern time on the last business day of the calendar year
o 4:00 p.m. Eastern time for Nations Governments Reserves, Nations
Municipal Reserves and Nations California Tax-Exempt Reserves
If we receive payment after these times, we'll refuse the order.
We'll return any payment received for orders that we refuse. We
can change these times under certain circumstances, for example,
when there's more wiring activity than normal.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for ensuring that we
receive payment on time.
o Shares purchased are recorded on the books of the Fund. We don't
issue certificates.
29
<PAGE>
[Graphic appears here] Selling shares
Here are some general rules for selling shares:
o We normally send the sale proceeds by federal funds wire on the
same business day that Stephens, PFPC or their agents receive the
order.
o If shares were paid for with a check that wasn't certified, we'll
hold the sale proceeds when those shares are sold for at least 15
days after the trade date of the purchase, or until the check has
cleared, whichever is later.
o Financial institutions and intermediaries are responsible for
sending us orders for their clients and for depositing the sale
proceeds to their accounts on time.
o Under certain circumstances allowed under the 1940 Act, we can pay
investors in securities or other property when they sell shares.
o We can delay payment of the sale proceeds for up to seven days.
o Other restrictions may apply to retirement plan accounts. For more
information about these restrictions please contact your retirement
plan administrator.
We may sell shares:
o if the value of an investor's account falls below $500. We'll
provide 30 days notice in writing if we're going to do this
o if a financial institution or intermediary tells us to sell the
shares for a client under arrangements it has made with its
client
o under certain other circumstances allowed under the 1940 Act
30
<PAGE>
You should make sure you understand the investment objectives and
policies of the Fund you're exchanging into. Please read its
prospectus carefully.
[Graphic appears here] Exchanging shares
Investors can sell shares of a Fund to buy shares of another Nations
Fund. This is called an exchange, and may be appropriate if investment
goals or tolerance for risk change.
Here's how exchanges work:
o Investors can exchange Institutional Class Shares of a Fund for
Institutional Class Shares of any other Fund.
o Investors must exchange at least $750,000 at a time.
o The rules for buying shares of a Fund, including any minimum
investment requirements, apply to exchanges into that Fund.
o Exchanges can only be made into a Fund that is legally sold in the
investor's state of residence.
o Exchanges can generally only be made into a Fund that is accepting
investments.
o We may limit the number of exchanges that can be made within a
specified period of time.
o We may change or cancel the right to make an exchange by giving the
amount of notice required by regulatory authorities (generally 60
days for a material change or cancellation).
31
<PAGE>
Financial institutions and intermediaries may charge other fees
for services provided to your account.
[Graphic appears here] Shareholder administration fees
BAAI, its affiliates and/or other financial institutions and intermediaries
may receive a maximum annual shareholder administration fee of 0.04% of the
average daily net assets of Institutional Class Shares of the Funds under a
shareholder administration plan.
Fees are calculated daily and deducted monthly. Over time, these fees will
increase the cost of your investment.
The Funds pay these fees to eligible financial institutions and intermediaries
for as long as the plan continues. We may reduce or discontinue payments at
any time.
BAAI and Stephens may pay amounts from their own assets to servicing agents of
the Funds for services they provide.
32
<PAGE>
The power of compounding
Reinvesting your distributions buys you more shares of a
Fund -- which lets you take advantage of the potential for
compound growth.
Putting the money you earn back into your investment means it, in
turn, may earn even more money. Over time, the power of
compounding has the potential to significantly increase the value
of your investment. There is no assurance, however, that you'll
earn more money if you reinvest your distributions.
[Graphic appears here] Distributions and taxes
About distributions
A mutual fund can make money two ways:
o It can earn income. Examples are interest paid on bonds and dividends paid
on common stocks.
o A fund can also have capital gains if the value of its investments
increases. If a fund sells an investment at a gain, the gain is realized.
If a fund continues to hold the investment, any gain is unrealized.
A mutual fund is not subject to income tax as long as it distributes its net
investment income and realized capital gains to its shareholders. The Funds
intend to pay out a sufficient amount of their income and capital gains to
their shareholders so the Funds won't have to pay any income tax. When a Fund
makes this kind of a payment, it's split equally among all shares, and is
called a distribution.
Although the Funds do not expect to realize any capital gains, any capital
gains realized by a Fund will be distributed at least once a year.
The Funds declare distributions of net investment income each business day,
and pay them on the first business day of each month.
The distribution you receive is paid based on the number of shares you hold on
the record date, which is usually the day the distribution is declared (daily
dividend Funds) or the day before the distribution is declared (all other
Funds). Shares are eligible to receive distributions from the settlement date
(daily dividend Funds) or the trade date (all other Funds) of the purchase up
to and including the day before the shares are sold.
Different share classes of a Fund usually pay different distribution amounts,
because each class has different expenses.
We'll automatically reinvest distributions in additional shares of the same
Fund unless you tell us you want to receive your distributions in cash. You
can do this by writing to us at the address on the back cover, or by calling
us at 1.800.626.2275 if you're an institutional investor, or 1.800.321.7854 if
you're an individual investor.
33
<PAGE>
This information is a summary of how federal income taxes may
affect your investment in the Funds. It is not intended as a
substitute for careful tax planning. You should consult with your
own tax adviser about your situation, including any foreign, state
and local taxes that may apply.
For more information about taxes, please see the SAI.
How taxes affect your investment
Distributions of net investment income and any excess of net short-term
capital gain over net long-term capital loss generally are taxable to you as
ordinary income.
Although the Funds do not expect to realize any capital gains, any
distributions of net capital gain (generally the excess of net long-term
capital gain over net short-term capital loss) generally are taxable to you as
net capital gain.
In general, all distributions are taxable to you when paid, whether they are
paid in cash or automatically reinvested in additional shares of the Fund.
However, any distributions declared in October, November or December of one
year and distributed in January of the following year will be taxable as if
they had been paid to you on December 31 of the first year.
We'll send you a notice every year that tells you how much you've received in
distributions during the year and their federal tax status. Foreign, state and
local taxes may also apply to these distributions.
Nations Municipal Reserves, Nations California Tax-Exempt Reserves
Distributions that come from Nations Municipal Reserves' tax-exempt interest
income are generally free from federal income tax, but may be subject to state
or local tax.
Distributions that come from Nations California Tax-Exempt Reserves'
tax-exempt interest income are generally free from federal income tax and
California state personal income tax, but may be subject to other state and
local taxes.
Any distributions that come from taxable income or realized capital gains are
generally subject to tax.
A portion of the distributions from these Funds may also be subject to the
federal alternative minimum tax.
U.S. government obligations
If you invest in U.S. government obligations directly, interest on those
obligations is free from state and local and personal income taxes.
Distributions you receive that come from interest the Fund earns from U.S.
government obligations may not be exempt from these taxes. Please consult with
your tax adviser.
34
<PAGE>
Withholding tax
We're required by federal law to withhold tax of 31% on any distributions and
redemption proceeds paid to you (including amounts to be paid for in
securities or other property and exchanges) if:
o you haven't given us a correct Taxpayer Identification Number (TIN) and
haven't certified that the TIN is correct and withholding doesn't apply
o the Internal Revenue Service (IRS) has notified us that the TIN listed on
your account is incorrect according to its records
o the IRS informs us that you are otherwise subject to backup withholding
The IRS may also impose penalties against you if you don't give us a correct
TIN.
Amounts we withhold are applied to your federal income tax liability. You may
receive a refund from the IRS if the withholding tax results in an overpayment
of taxes.
We're also normally required by federal law to withhold tax (at a rate of 30%,
or a lower rate if a treaty applies) on distributions paid to foreign
shareholders.
Taxation of redemptions and exchanges
As long as a Fund continually maintains a $1.00 net asset value per share, you
ordinarily will not recognize a taxable gain or loss on the redemption or
exchange of your shares of the Fund.
35
<PAGE>
This glossary includes explanations of the important terms that
may be used in this Prospectus. Some of the terms explained may
apply to Nations Funds not included in this Prospectus.
[Graphic appears here] Terms used in this prospectus
Average dollar-weighted maturity - the average length of time until the debt
securities held by a Fund reach maturity. In general, the longer the average
dollar-weighted maturity, the more a Fund's share price will fluctuate in
response to changes in interest rates.
Bank obligation - a money market instrument issued by a bank, including
certificates of deposit, time deposits and bankers' acceptances.
Capital gain or loss - the difference between the purchase price of a security
and its selling price. You realize a capital gain when you sell a security for
more than you paid for it. You realize a capital loss when you sell a security
for less than you paid for it.
Commercial paper - a money market instrument issued by a large company.
Common stock - a security that represents part equity ownership in a company.
Common stock typically allows you to vote at shareholder meetings and to share
in the company's profits by receiving dividends.
Debt security - when you invest in a debt security, you are typically lending
your money to a governmental body or company (the issuer) to help fund their
operations or major projects. The issuer pays interest at a specified rate on
a specified date or dates, and repays the principal when the security matures.
Short-term debt securities include money market instruments such as treasury
bills. Long-term debt securities include fixed income securities such as
government and corporate bonds, and mortgage-backed and asset-backed
securities.
First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that
is an eligible investment for money market funds and has the highest
short-term rating from a nationally recognized statistical rating organization
(NRSRO) or if unrated, is determined by the fund's portfolio management team
to be of comparable quality, or is a money market fund issued by a registered
investment company, or is a government security.
High quality - includes municipal securities that are rated in the top two
highest short-term debt categories according to NRSROs such as S&P and
Moody's. The portfolio management team may consider an unrated municipal
security if it is determined to be of comparable quality, based upon
guidelines approved by the Fund's Board of Trustees. Please see the SAI for
more information about credit ratings.
Liquidity - a measurement of how easily a security can be bought or sold at a
price that is close to its market value.
Money market instrument - a short-term debt security that is considered to
mature in 13 months or less. Money market instruments include U.S. Treasury
obligations, U.S. government obligations, certificates of deposit, bankers'
acceptances, commercial paper, repurchase agreements and certain municipal
securities.
36
<PAGE>
Municipal security (obligation) - a debt security issued by state or local
governments or governmental authorities to pay for public projects and
services. "General obligations" are typically backed by the issuer's full
taxing and revenue-raising powers. "Revenue securities" depend on the income
earned by a specific project or authority, like road or bridge tolls, user
fees for water or revenues from a utility. Interest income from these
securities is exempt from federal income taxes and is generally exempt from
state taxes if you live in the state that issued the security. If you live in
the municipality that issued the security, interest income may also be exempt
from local taxes.
Non-diversified - a fund that holds securities of fewer issuers or kinds of
issuers than other kinds of funds. Non-diversified funds tend to have greater
price swings than more diversified funds because events affecting one or more
of its securities may have a disproportionately large effect on the fund.
Participation - a pass-through certificate representing a share in a pool of
debt obligations or other instruments.
Pass-through certificate - securitized mortgages or other debt securities with
interest and principal paid by a servicing intermediary shortly after interest
payments are received from borrowers.
Private activity bond - a municipal security that is used to finance private
projects or other projects that aren't qualified for tax purposes. Private
activity bonds are generally taxable, unless their use is specifically
exempted, or may be treated as tax preference items.
Repurchase agreement - a short-term (often overnight) investment arrangement.
The investor agrees to buy certain securities from the borrower and the
borrower promises to buy them back at a specified date and price. The
difference between the purchase price paid by the investor and the repurchase
price paid by the borrower represents the investor's return. Repurchase
agreements are popular because they provide very low-risk return and can
virtually eliminate credit difficulties.
Reverse repurchase agreement - a repurchase agreement in which an investor
sells a security to another party, like a bank or dealer, in return for cash,
and agrees to buy the security back at a specified date and price.
Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security
that is an eligible investment for money market funds, but is not a first-tier
security.
Settlement date - the date on which an order is settled either by payment or
delivery of securities.
Special purpose issuer - an entity organized solely to issue asset-backed
securities on a pool of assets it owns.
37
<PAGE>
Trade date - the effective date of a purchase, sale or exchange transaction,
or other instructions sent to us. The trade date is determined by the day and
time we receive the order or instructions in a form that's acceptable to us.
U.S. government obligations - a wide range of debt securities issued or
guaranteed by the U.S. government or its agencies, authorities or
instrumentalities.
U.S. Treasury obligation - a debt security issued by the U.S. Treasury.
38
<PAGE>
[Graphic appears here] Where to find more information
You'll find more information about the Money Market Funds in the following
documents:
Annual and semi-annual reports
The annual and semi-annual reports contain information about Fund
investments and performance, the financial statements and the
independent accountants' reports.
[Graphic appears here] Statement of Additional Information
The SAI contains additional information about the Funds and their
policies. The SAI is legally part of this prospectus (it's incorporated
by reference). A copy has been filed with the SEC.
You can obtain a free copy of these documents, request other
information about the Funds and make shareholder inquiries by
contacting Nations Funds:
By telephone: 1.800.626.2275 (Institutional Investors)
1.800.321.7854 (Individual Investors)
By mail:
Nations Funds
c/o Stephens Inc.
One Bank of America Plaza
33rd Floor
Charlotte, NC 28255
On the Internet: www.nations-funds.com
Information about the Funds can be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information on the operation
of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. The reports and other information about the Funds are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained,
after paying a duplicating fee, by electronic request at the following
E-mail address: [email protected], or by writing the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
SEC file number:
Nations Reserves, 811-6030
INSTITUTIONAL-10/00
[Nations Funds logo appears here]
<PAGE>
Statement of Additional Information
<TABLE>
<CAPTION>
<S> <C>
NATIONS FUND, INC. NATIONS FUND TRUST
Nations Prime Fund Nations Government Money Market Fund
Nations Treasury Fund Nations Tax Exempt Fund
Nations Equity Income Fund Nations Value Fund
Nations Government Securities Fund Nations Capital Growth Fund
Nations International Growth Fund Nations MidCap Growth Fund
Nations Small Company Fund Nations LargeCap Index Fund
Nations U.S. Government Bond Fund Nations Managed Index Fund
Nations SmallCap Index Fund
NATIONS RESERVES Nations Aggressive Growth Fund
Nations Cash Reserves Nations Strategic Growth Fund
Nations Money Market Reserves Nations Balanced Assets Fund
Nations Treasury Reserves Nations Short-Intermediate Government Fund
Nations Government Reserves Nations Short-Term Income Fund
Nations Municipal Reserves Nations Strategic Income Fund
Nations California Tax-Exempt Reserves Nations Bond Fund
Nations Asset Allocation Fund Nations Municipal Income Fund
Nations Convertible Securities Fund Nations Short-Term Municipal Income Fund
Nations Emerging Markets Fund Nations Intermediate Municipal Bond Fund
Nations Marsico Growth & Income Fund Nations Florida Intermediate Municipal Bond Fund
Nations Marsico Focused Equities Fund Nations Florida Municipal Bond Fund
Nations California Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund
Nations Intermediate Bond Fund Nations Georgia Municipal Bond Fund
Nations International Equity Fund Nations Maryland Intermediate Municipal Bond Fund
Nations International Value Fund Nations Maryland Municipal Bond Fund
Nations Blue Chip Fund Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
NATIONS FUNDS TRUST Nations South Carolina Intermediate Municipal Bond Fund
Nations High Yield Bond Fund Nations South Carolina Municipal Bond Fund
Nations Kansas Municipal Income Fund Nations Tennessee Intermediate Municipal Bond Fund
Nations MidCap Index Fund Nations Tennessee Municipal Bond Fund
Nations Marsico 21st Century Fund Nations Texas Intermediate Municipal Bond Fund
Nations Marsico International Opportunities Fund Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
</TABLE>
Capital, Institutional, Adviser, Liquidity, Market, Investor, Service, Daily,
Trust, Investor A, Investor B, Investor C, Primary A, Primary B and Marsico
Shares August 1, 2000, as supplemented on October 31, 2000
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed sixty-two investment portfolios of Nations Fund, Inc., Nations
Reserves, Nations Funds Trust, and Nations Fund Trust (individually, a "Fund"
and collectively, the "Funds"). The financial statements for the Funds contained
in their annual reports dated March 31, 2000, are hereby incorporated into this
SAI by reference. This SAI is not a prospectus, and should be read only in
conjunction with the current prospectuses for the aforementioned Funds related
to the class or series of shares in which one is interested, dated August 1,
2000, (each a "Prospectus"). Copies of the Prospectuses may be obtained without
charge by writing Nations Funds c/o Stephens Inc., One Bank of America Plaza,
33rd Floor, Charlotte, North Carolina 28255, or by calling Nations Funds at
1.800.321.7854 and 1.800.626.2275 (for institutional money market investors).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC.,
NATIONS RESERVES, AND NATIONS FUNDS TRUST.................................................... 1
DESCRIPTION OF THE COMPANIES AND THE INVESTMENTS AND RISKS
OF THEIR FUNDS .............................................................................. 1
General............................................................................... 1
Investment Limitations ............................................................... 5
NR Funds' Fundamental Policy Restrictions............................................. 5
NR Funds' Non-Fundamental Policy Restrictions......................................... 11
NFT and NFI Funds' Fundamental Policy Restrictions.................................... 13
NFT and NFI Funds' Non-Fundamental Policy Restrictions................................ 15
NFST's Fundamental Policy Restrictions................................................ 16
NFST's Non-Fundamental Policy Restrictions............................................ 17
Permissible Fund Investments.......................................................... 18
The Domestic Stock Funds.............................................................. 18
The International Stock Funds......................................................... 20
The Index Funds....................................................................... 20
Balanced Fund......................................................................... 21
Government and Corporate Bond Funds................................................... 21
National Municipal Bond Funds......................................................... 23
State Municipal Bond Funds and State Intermediate Municipal Bond Funds................ 23
Asset-Backed Securities............................................................... 24
Borrowings............................................................................ 28
Commercial Instruments................................................................ 29
Combined Transactions................................................................. 29
Convertible Securities................................................................ 30
Corporate Debt Securities............................................................. 30
Custodial Receipts.................................................................... 31
Currency Swaps........................................................................ 31
Delayed Delivery Transactions......................................................... 31
Dollar Roll Transactions ............................................................. 31
Equity Swap Contracts ................................................................ 32
Foreign Currency Transactions ........................................................ 33
Futures, Options and Other Derivative Instruments..................................... 34
Guaranteed Investment Contracts....................................................... 48
Illiquid and Restricted Securities.................................................... 48
Insured Municipal Securities ......................................................... 49
Interest Rate Transactions ........................................................... 49
Lower Rated Debt Securities........................................................... 50
Municipal Securities ................................................................. 51
Options on Currencies................................................................. 84
Other Investment Companies............................................................ 84
Participation Interests and Company Receipts.......................................... 84
Real Estate Investment Trusts......................................................... 84
Repurchase Agreements ................................................................ 85
Reverse Repurchase Agreements ........................................................ 85
Securities Lending.................................................................... 85
Short Sales........................................................................... 86
Special Situations.................................................................... 86
Standard & Poor's Depositary Receipts................................................. 86
Stand-by Commitments ................................................................. 86
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Stripped Securities................................................................... 87
U.S. and Foreign Bank Obligations..................................................... 88
U.S. Government Obligations........................................................... 88
Use of Segregated and Other Special Accounts.......................................... 89
Variable and Floating Rate Instruments ............................................... 89
Warrants.............................................................................. 90
When-Issued Purchases and Forward Commitments ....................................... 90
Portfolio Turnover.................................................................... 90
Investment Risks and Considerations................................................... 91
MANAGEMENT OF THE COMPANIES.................................................................. 93
Nations Funds Retirement Plan......................................................... 97
Nations Funds Deferred Compensation Plan.............................................. 97
Shareholder and Trustee Liability..................................................... 99
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
DISTRIBUTION AGREEMENTS ..................................................................... 100
Investment Adviser and Sub-Advisers................................................... 100
Co-Administrators and Sub-Administrator............................................... 109
Distribution Plans and Shareholder Servicing Arrangements for
Investor A Shares................................................................. 125
Investor B/C Shares .............................................................. 126
Investor C/B Shares............................................................... 128
Shareholder Administration Plan for Investor B and Investor C Shares
of NR's Money Market Funds..................................................... 129
Daily Shares...................................................................... 129
Marsico Shares of the Prime Fund.................................................. 131
Information Applicable to Investor A, Investor B, Investor C and Daily Shares..... 131
Primary B Shares - Money Market Funds............................................. 137
Primary B Shares - Non-Money Market Funds......................................... 137
Liquidity Class................................................................... 138
Market Class...................................................................... 139
Adviser Class..................................................................... 141
Trust Class....................................................................... 142
Service Class..................................................................... 143
Investor Class.................................................................... 144
Expenses.......................................................................... 146
Transfer Agents and Custodians........................................................ 147
Distributor........................................................................... 147
Independent Accountant and Reports.................................................... 147
Counsel............................................................................... 148
FUND TRANSACTIONS AND BROKERAGE.............................................................. 148
General Brokerage Policy.............................................................. 148
Brokerage Commissions Paid to Affiliates.............................................. 150
Securities of Regular Broker/Dealers Held by the Funds................................ 151
Directed Brokerage.................................................................... 152
Monies Paid to Broker/Dealers From the Profits of the Adviser......................... 153
Section 28(e) Standards............................................................... 153
DESCRIPTION OF SHARES........................................................................ 154
Description of Shares of the Companies................................................ 154
Net Asset Value Determination......................................................... 155
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL INFORMATION CONCERNING TAXES...................................................... 156
General............................................................................... 157
Excise Tax ........................................................................... 157
Private Letter Ruling................................................................. 157
Investment through Master Portfolios.................................................. 157
Taxation of Fund/Master Portfolio Investments......................................... 158
Foreign Taxes ........................................................................ 159
Capital Gain Distributions............................................................ 159
Other Distributions................................................................... 160
Disposition of Fund Shares............................................................ 160
Federal Income Tax Rates.............................................................. 160
Corporate Shareholders................................................................ 160
Foreign Shareholders.................................................................. 161
Backup Withholding.................................................................... 161
New Regulations....................................................................... 161
Tax-Deferred Plans.................................................................... 161
Special Tax Considerations Pertaining to Municipal Reserves, California Tax-Exempt Reserves,
California Municipal Bond Fund, Tax Exempt Fund, Municipal Income
Fund, Short-Term Municipal Income Fund, Intermediate Municipal Bond
Fund, Florida Intermediate Municipal Bond Fund, Florida Municipal
Bond Fund, Georgia Intermediate Municipal Bond Fund, Georgia
Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
Maryland Municipal Bond Fund, North Carolina Intermediate Municipal
Bond Fund, North Carolina Municipal Bond Fund, South Carolina
Intermediate Municipal Bond Fund, South Carolina Municipal Bond
Fund, Tennessee Intermediate Municipal Bond Fund, Tennessee
Municipal Bond Fund, Texas Intermediate Municipal Bond Fund, Texas
Municipal Bond Fund, Virginia Intermediate Municipal Bond Fund, and
Virginia Municipal Bond Fund ................................................... 161
Special Tax Considerations Pertaining to California Tax-Exempt Reserves and California
Municipal Bond Fund............................................................ 162
Special Tax Considerations Pertaining to Florida Intermediate Municipal Bond Fund
and Florida Municipal Bond Fund ............................................... 163
Special Tax Considerations Pertaining to Georgia Intermediate Municipal Bond Fund
and Georgia Municipal Bond Fund................................................ 164
Special Tax Considerations Pertaining to the Kansas Fund.............................. 164
Special Tax Considerations Pertaining to Maryland Intermediate Municipal Bond Fund
and Maryland Municipal Bond Fund............................................... 164
Special Tax Considerations Pertaining to North Carolina Intermediate Municipal Bond
Fund and North Carolina Municipal Bond Fund.................................... 165
Special Tax Considerations Pertaining to South Carolina Intermediate Municipal Bond
Fund and South Carolina Municipal Bond Fund.................................... 165
Special Tax Considerations Pertaining to Tennessee Municipal Bond Fund................ 165
Special Tax Considerations Pertaining to Virginia Intermediate Municipal Bond
Fund and Virginia Municipal Bond Fund.......................................... 165
Other Matters......................................................................... 165
ADDITIONAL INFORMATION ON PERFORMANCE........................................................ 166
Yield Calculations.................................................................... 168
Total Return Calculations............................................................. 179
MISCELLANEOUS ............................................................................... 189
Certain Record and Beneficial Holders................................................. 189
SCHEDULE A - Description of Ratings.......................................................... A-1
</TABLE>
iii
<PAGE>
HISTORY OF NATIONS FUND TRUST, NATIONS FUND, INC.,
--------------------------------------------------
NATIONS RESERVES AND NATIONS FUNDS TRUST
----------------------------------------
Nations Fund Trust ("NFT"), Nations Fund, Inc. ("NFI"), Nations
Reserves (formerly known as The Capitol Mutual Funds)(1) ("NR"), and Nations
Funds Trust ("NFST") (individually a "Company", and collectively, the
"Companies") are open-end registered investment companies in the Nations Funds
family of mutual funds (the "Nations Funds Family"), which consists of the
Companies, Nations LifeGoal Funds, Inc., Nations Annuity Trust, and Nations
Master Investment Trust. The Nations Funds Family currently has more than 70
distinct investment portfolios and total assets in excess of $90 billion.
NFT was organized as a Massachusetts business trust on May 6, 1985. NFI
was organized as a Maryland corporation on December 13, 1983, but had no
operations prior to December 15, 1986. NR was organized as a Massachusetts
business trust on January 22, 1990. NFST was organized as a Delaware business
trust on October 22, 1999. NFT, NFI, NR, and NFST each have fiscal year ends of
March 31.
DESCRIPTION OF THE COMPANIES AND
--------------------------------
THE INVESTMENTS AND RISKS OF THEIR FUNDS
----------------------------------------
General.
NFT currently consists of thirty-four different investment portfolios.
This SAI pertains to: the Primary A, Investor A, Investor B and Investor C
Shares of Nations Strategic Growth Fund ("Strategic Growth Fund"); the Primary
A, Primary B, Investor A, Investor B, Investor C and Daily Shares of Nations
Government Money Market Fund ("Government Money Market Fund") and Nations Tax
Exempt Fund ("Tax Exempt Fund") (collectively, also referred to as the "NFT
Money Market Funds"); the Primary A, Primary B, Investor A and Investor B Shares
of Nations Managed Index Fund ("Managed Index Fund"), Nations SmallCap Index
Fund ("SmallCap Index Fund"); and the Primary A, Primary B, Investor A, Investor
B and Investor C Shares of Nations Value Fund ("Value Fund"), Nations Capital
Growth Fund ("Capital Growth Fund"), Nations MidCap Growth Fund ("MidCap Growth
Fund"), Nations LargeCap Index Fund ("LargeCap Index Fund"), Nations Aggressive
Growth Fund ("Aggressive Growth Fund"), Nations Balanced Assets Fund ("Balanced
Assets Fund"), Nations Short-Intermediate Government Fund ("Short-Intermediate
Government Fund"), Nations Short-Term Income Fund ("Short-Term Income Fund"),
Nations Strategic Income Fund ("Strategic Income Fund"), Nations Bond Fund
("Bond Fund"), Nations Municipal Income Fund ("Municipal Income Fund"), Nations
Short-Term Municipal Income Fund ("Short-Term Municipal Income Fund"), Nations
Intermediate Municipal Bond Fund ("Intermediate Municipal Bond Fund"), Nations
Florida Intermediate Municipal Bond Fund ("Florida Intermediate Municipal Bond
Fund"), Nations Georgia Intermediate Municipal Bond Fund ("Georgia Intermediate
Municipal Bond Fund"), Nations Maryland Intermediate Municipal Bond Fund
("Maryland Intermediate Municipal Bond Fund"), Nations North Carolina
Intermediate Municipal Bond Fund ("North Carolina Intermediate Municipal Bond
Fund"), Nations South Carolina Intermediate Municipal Bond Fund ("South Carolina
Intermediate Municipal Bond Fund"), Nations Tennessee Intermediate Municipal
Bond Fund ("Tennessee Intermediate Municipal Bond Fund"), Nations Texas
Intermediate Municipal Bond Fund ("Texas Intermediate Municipal Bond Fund"),
Nations Virginia Intermediate Municipal Bond Fund ("Virginia Intermediate
Municipal Bond Fund"), Nations Florida Municipal Bond Fund ("Florida Municipal
Bond Fund"), Nations Georgia Municipal Bond Fund ("Georgia Municipal Bond
Fund"), Nations Maryland Municipal Bond Fund ("Maryland Municipal Bond Fund"),
Nations North Carolina Municipal Bond Fund ("North Carolina Municipal Bond
Fund"), Nations South Carolina Municipal Bond Fund ("South Carolina Municipal
Bond Fund"), Nations Tennessee Municipal Bond Fund ("Tennessee Municipal Bond
Fund"), Nations Texas Municipal Bond Fund ("Texas Municipal Bond Fund"), and
Nations Virginia Municipal Bond Fund ("Virginia Municipal Bond Fund"). The
Florida Intermediate Municipal Bond Fund, Georgia Intermediate Municipal Bond
Fund, Maryland Intermediate Municipal Bond Fund, North Carolina Intermediate
Municipal Bond Fund, South Carolina Intermediate Municipal Bond Fund, Tennessee
Intermediate Municipal Bond Fund, Texas Intermediate Municipal Bond Fund and
Virginia Intermediate Municipal Bond Fund are sometimes collectively referred to
herein as the "State Intermediate Municipal Bond Funds." The Florida Municipal
Bond Fund, Georgia Municipal Bond Fund, Kansas Fund (of NFST, as defined below),
Maryland Municipal Bond Fund, North Carolina Municipal Bond Fund, South Carolina
Municipal Bond Fund, Tennessee Municipal Bond Fund, Texas Municipal Bond Fund
and Virginia Municipal Bond
--------
(1) More specifically, Nations Reserves is the name under which The Capitol
Mutual Funds conducts business.
1
<PAGE>
Fund are sometimes collectively referred to herein as the "State Municipal Bond
Funds." All of the Funds of NFT are diversified, with the exception of the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds.
Each share of NFT is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of NFT's
Board of Trustees. NFT's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of NFT will vote in the aggregate and not by fund, and shareholders of
each fund will vote in the aggregate and not by class except as otherwise
expressly required by law or when the Board of Trustees determines that the
matter to be voted on affects only the interests of shareholders of a particular
fund or class. See the discussion on Investment Limitations and Description of
Shares for examples of when the Investment Company Act of 1940, as amended (the
"1940 Act") requires voting by fund.
As of August 1, 2000, Bank of America, and its affiliates possessed or
shared power to dispose or vote with respect to more than 25% of the outstanding
shares of NFT and therefore could be considered to be a controlling person of
NFT for purposes of the 1940 Act. For more detailed information concerning the
percentage of each class or series of shares over which Bank of America and its
affiliates possessed or shared power to dispose or vote as of a certain date,
see the discussion on Certain Record Holders.
Shareholders of NFT do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all funds voting
together for election of Trustees may elect all of the members of the Board of
Trustees of NFT. Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFT. There are no preemptive rights
applicable to any of NFT's shares. NFT's shares, when issued, will be fully paid
and non-assessable.
NFT does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
NFT's Code of Regulations provides that special meetings of shareholders shall
be called at the written request of the shareholders entitled to vote at least
10% of the outstanding shares of NFT entitled to be voted at such meeting.
NFI currently consists of seven different investment portfolios. This
SAI pertains to the Primary A, Primary B, Investor A, Investor B, Investor C ,
Daily Shares and Marsico Shares of Nations Prime Fund (the "Prime Fund") and the
Primary A, Primary B, Investor A, Investor B, Investor C and Daily Shares of
Nations Treasury Fund (the "Treasury Fund") (collectively referred to as the
"NFI Money Market Funds"), and the Primary A, Primary B, Investor A, Investor B
and Investor C Shares of Nations Equity Income Fund (the "Equity Income Fund"),
Nations Government Securities Fund (the "Government Securities Fund"), Nations
Small Company Fund (the "Small Company Fund"), Nations U.S. Government Bond Fund
(the "U.S. Government Bond Fund") and Nations International Growth Fund (the
"International Growth Fund"). All of the Funds of NFI are diversified.
As of the date of this SAI, the authorized capital stock of NFI
consists of 380,000,000,000 shares of common stock, par value of $.001 per
share, which are divided into series or funds each of which consists of separate
classes of shares. Shares of each fund and class have equal rights with respect
to voting, except that the holders of shares of a particular fund or class will
have the exclusive right to vote on matters affecting only the rights of the
holders of such fund or class. In the event of dissolution or liquidation,
holders of each class will receive pro rata, subject to the rights of creditors,
(a) the proceeds of the sale of that portion of the assets allocated to that
class held in the respective fund of NFI, less (b) the liabilities of NFI
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of NFI do not have cumulative voting rights, and therefore
the holders of more than 50% of the outstanding shares of all funds voting
together for election of Directors may elect all of the members of the Board of
Directors of NFI. Meetings of shareholders may be called upon the request of 10%
or more of the outstanding shares of NFI. There are no preemptive rights
applicable to any of NFI's shares. NFI's shares, when issued, will be fully paid
and non-assessable.
As of August 1, 2000, Bank of America and its affiliates possessed or
shared power to dispose of or vote with respect to more than 25% of the
outstanding shares of NFI and therefore could be considered to be a controlling
2
<PAGE>
person of NFI for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which Bank of America and
its affiliates possessed or shared power to dispose or vote as of a certain
date, see the discussion on Certain Record Holders. It is anticipated that NFI
will not hold annual shareholder meetings on a regular basis unless required by
the 1940 Act or Maryland law.
NR currently consists of sixteen investment portfolios. The Agreement
and Declaration of Trust under which NR was duly established permits NR to offer
separate series of units of beneficial interest ("shares"). Each share of each
series represents an equal proportionate interest in that series. This SAI
relates to: the Capital, Institutional, Liquidity, Adviser, Market, Daily,
Service, Investor and Trust Shares of Nations Cash Reserves ("Cash Reserves"),
Nations Money Market Reserves ("Money Market Reserves"), Nations Treasury
Reserves ("Treasury Reserves"), Nations Government Reserves ("Government
Reserves"), Nations Municipal Reserves ("Municipal Reserves") and Nations
California Tax-Exempt Reserves ("California Reserves") (collectively referred to
as the "NR Money Market Funds"); and to the Primary A, Investor A, Investor B
and Investor C Shares of Nations Asset Allocation Fund ("Asset Allocation Fund")
and Nations Intermediate Bond Fund ("Intermediate Bond Fund"); and to the
Primary A, Investor A, Investor B and Investor C Shares of Nations Convertible
Securities Fund ("Convertible Securities Fund"), Nations Marsico Focused
Equities Fund ("Marsico Focused Equities Fund"), Nations Marsico Growth & Income
Fund ("Marsico Growth & Income Fund"), Nations International Equity Fund
("International Equity Fund"), Nations International Value Fund ("International
Value Fund") and Nations California Municipal Bond Fund ("California Bond
Fund"); and to the Primary A, Primary B, Investor A, Investor B and Investor C
Shares of Nations Blue Chip Fund ("Blue Chip Fund"); and to the Primary A,
Primary B, Investor A, Investor B and Investor C Shares of Nations Emerging
Markets Fund ("Emerging Markets Fund"). All of the Funds of NR are diversified,
with the exception of the Marsico Focused Equities Fund, California Reserves and
the California Bond Fund.
Each share of NR is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of NR's
Board of Trustees. NR's Agreement and Declaration of Trust authorizes the Board
of Trustees to classify or reclassify any class of shares into one or more
series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of NR will vote in the aggregate and not by fund, and shareholders of
each fund will vote in the aggregate and not by class except as otherwise
expressly required by law or when the Board of Trustees determines that the
matter to be voted on affects only the interests of shareholders of a particular
fund or class.
As of August 1, 2000, Bank of America and its affiliates possessed or
shared power to dispose of or vote with respect to more than 25% of the
outstanding shares of NR and, therefore, could be considered to be a controlling
person of NR for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series over which Bank of America and
its affiliates possessed or shared power to dispose or vote as of a certain
date, see the discussion on Certain Record Holders. It is anticipated that NR
will not hold annual shareholder meetings on a regular basis unless required by
the 1940 Act or Massachusetts business trust law.
NFST currently consists of five different investment portfolios. This
SAI pertains to the Primary A Shares of the Nations High Yield Bond Fund (the
"High Yield Fund"), Nations Kansas Municipal Income Fund (the "Kansas Fund"),
Nations MidCap Index Fund (the "MidCap Index Fund"), Nations Marsico 21st
Century Fund (the "Marsico 21st Century Fund), and Nations Marsico International
Opportunities Fund (the "Marsico International Opportunities Fund"); Investor A
Shares of the High Yield Fund, the Kansas Fund, the MidCap Index Fund, the
Marsico 21st Century Fund, and the Marsico International Opportunities Fund;
Investor B Shares of the High Yield Fund, the Kansas Fund, the Marsico 21st
Century Fund, and the Marsico International Opportunities Fund, and Investor C
Shares of the High Yield Fund, the Kansas Fund, the Marsico 21st Century Fund,
and the Marsico International Opportunities Fund. All of the Funds of NFST are
diversified, with the exception of the Kansas Fund.
Each share of NFST is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of NFST's
Board of Trustees. NFST's Declaration of Trust authorizes the Board of Trustees
to classify or reclassify any class of shares into one or more series of shares.
3
<PAGE>
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each Fund of NFST will vote in the aggregate and not by fund, and shareholders
of each fund will vote in the aggregate and not by class except as otherwise
expressly required by law or when the Board of Trustees determines that the
matter to be voted on affects only the interests of shareholders of a particular
fund or class. See the discussion on Investment Limitations and Description of
Shares for examples of when the 1940 Act requires voting by fund.
The Declaration of Trust of NFST further provides that NFST
shareholders are only given the right to vote on matters to the extent that the
1940 Act or Delaware law so requires. Additionally, the Declaration of Trust
provides as follows: "Because this Declaration does not confer any independent
voting rights to Shareholders not expressly granted under Delaware law or the
1940 Act, this Declaration may be amended without Shareholder approval, and all
Shareholders purchase Shares with notice that it may be so amended unless
expressly required under Delaware law or the 1940 Act. The Trustees may, without
any Shareholder vote, amend or otherwise supplement this Declaration by making
an amendment, a trust instrument supplemental hereto or an amended and restated
declaration of trust; provided, that Shareholders shall have the right to vote
on any amendment if expressly required under Delaware law or the 1940 Act, or
submitted to them by the Trustees in their discretion."
As of the date of the SAI set forth on the cover page, Bank of America
and its affiliates possessed or shared power to dispose or vote with respect to
more than 25% of the outstanding shares of NFST and therefore could be
considered to be a controlling person of NFST for purposes of the 1940 Act. For
more detailed information concerning the percentage of each class or series of
shares over which Bank of America and its affiliates possessed or shared power
to dispose or vote as of a certain date, see the discussion on Certain Record
Holders. NFST does not presently intend to hold annual meetings except as
required by the 1940 Act.
The Intermediate Bond Fund, Blue Chip Fund, Marsico Focused Equities
Fund, Marsico Growth & Income Fund, International Equity Fund, High Yield Fund,
Marsico 21st Century Fund , and Marsico International Opportunities Fund are
sometimes referred to herein as "Feeder Funds." The Feeder Funds seek to achieve
their respective investment objectives by investing substantially all of their
assets in diversified investment portfolios having the same investment objective
as corresponding master portfolios (each a "Master Portfolio" and collectively,
the "Master Portfolios") of Nations Master Investment Trust ("NMIT"), an
open-end management investment company in the Nations Funds Family. Feeder Fund
and Master Fund are sometimes used interchangeably. The Intermediate Bond Fund
invests substantially all of its assets in Nations Intermediate Bond Master
Portfolio (the "Intermediate Bond Master Portfolio"). The Blue Chip Fund invests
substantially all of its assets in Nations Blue Chip Master Portfolio (the "Blue
Chip Master Portfolio"). The Marsico Focused Equities Fund invests substantially
all of its assets in Nations Marsico Focused Equities Master Portfolio (the
"Marsico Focused Equities Master Portfolio"). The Marsico Growth & Income Fund
invests substantially all of its assets in Nations Marsico Growth & Income
Master Portfolio (the "Marsico Growth & Income Master Portfolio"). The
International Equity Fund invests substantially all of its assets in Nations
International Equity Master Portfolio. The High Yield Fund invests substantially
all of its assets in Nations High Yield Bond Master Portfolio (the "High Yield
Master Portfolio"), the Marsico 21st Century Fund invests substantially all of
its assets in Nations Marsico 21st Century Master Portfolio (the "Marsico 21st
Century Master Portfolio") and the Marsico International Opportunities Fund
invests substantially all of its assets in Nations Marsico International
Opportunities Master Portfolio (the "Marsico International Opportunities Master
Portfolio").
Because this SAI combines disclosures on four separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this SAI
concerning another investment company. NFT, NFI, NR, and NFST have entered into
an indemnification agreement that creates a right of indemnification from the
investment company responsible for any such misstatement, inaccuracy or
incomplete disclosure that may appear in this SAI.
The NFI Money Market Funds, NFT Money Market Funds, and NR Money Market
Funds are collectively referred to herein as the "Money Market Funds". All other
Funds of NFI, NFT, NR, and NFST are sometimes referred to as "Non-Money Market
Funds".
Banc of America Advisors, Inc. ("BAAI") is the investment adviser to
the Funds, except the Feeder Funds. BAAI is the investment adviser to the Master
Portfolios.
4
<PAGE>
Chicago Equity Partners, LLC ("Chicago Equity") is co-investment
sub-adviser with Banc of America Capital Management, Inc. ("BACAP") to the Asset
Allocation Fund. Gartmore Global Partners ("Gartmore") is the investment
sub-adviser to the Emerging Markets Fund and the International Growth Fund.
BACAP is the investment sub-adviser to all other Funds except the Feeder Funds.
Brandes Investment Partners, L.P. ("Brandes") is the investment sub-adviser to
the International Value Master Portfolio. Marsico Capital Management, LLC
("Marsico Capital") is investment sub-adviser to the Marsico Focused Equities
Master Portfolio, Marsico Growth & Income Master Portfolio, Marsico 21st Century
Master Portfolio, and the Marsico International Opportunities Master Portfolio.
Gartmore, INVESCO Global Asset Management (N.A.), Inc. ("INVESCO"), and Putnam
Investment Management, Inc. ("Putnam") are the co-investment sub-advisers to the
International Equity Master Portfolio. MacKay Shields LLC ("MacKay Shields") is
the investment sub-adviser to the High Yield Bond Master Portfolio. BACAP is the
investment sub-adviser to all the other Funds. As used herein the term "Adviser"
shall mean BAAI, Chicago Equity, BACAP, Gartmore, INVESCO, Putnam, Brandes,
MacKay Shields and/or Marsico Capital as the context may require.
This SAI is intended to furnish prospective investors with additional
information concerning the Companies and the Funds. Some of the information
required to be in this SAI is also included in the Funds' current Prospectuses,
and, in order to avoid repetition, reference will be made to sections of the
Prospectuses. Additionally, the Prospectuses and this SAI omit certain
information contained in the registration statement filed with the United States
Securities and Exchange Commission (the "SEC"). Copies of the registration
statement, including items omitted from the Prospectuses and this SAI, may be
obtained from the SEC by paying the charges prescribed under its rules and
regulations. No investment in the Funds' Shares should be made without first
reading the related Prospectuses.
Investment Limitations
Information concerning a Fund's investment objective is set forth in
the applicable Prospectus. There can be no assurance that the Funds will achieve
their objectives. The features of the Funds' principal investment strategies and
the principal risks associated with those investment strategies also are
discussed in the Prospectuses.
The fundamental and non-fundamental investment restrictions applicable
to the Funds' investment programs are set forth below. The investment
limitations that are matters of fundamental policy may not be changed without
the affirmative vote of a Fund's shareholders. The investment limitations that
are matters of non-fundamental policy may be changed without the affirmative
vote of a Fund's shareholders.
In addition to the policies outlined below, each Fund is seeking or has
obtained permission from the SEC to invest in other Funds in the Nations Funds
family.
NR Funds' Fundamental Policy Restrictions
-----------------------------------------
Each Fund (except with respect to certain Funds whose restrictions are
enumerated separately) may not:
1. Borrow money or issue senior securities as defined in the Investment
Company Act of 1940, as amended (the "1940 Act") except that (a) a Fund
may borrow money from banks for temporary purposes in amounts up to
one-third of the value of such Fund's total assets at the time of
borrowing, provided that borrowings in excess of 5% of the value of
such Fund's total assets will be repaid prior to the purchase of
additional portfolio securities by such Fund, (b) a Fund may enter into
commitments to purchase securities in accordance with the Fund's
investment program, including delayed delivery and when-issued
securities, which commitments may be considered the issuance of senior
securities, and (c) a Fund may issue multiple classes of shares in
accordance with SEC regulations or exemptions under the 1940 Act. The
purchase or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities. Each Fund may enter into reverse repurchase agreements or
dollar roll transactions. The purchase or sale of futures contracts and
related options shall not be considered to involve the borrowing of
money or issuance of senior securities.
2. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of
initial or maintenance margin connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
5
<PAGE>
3. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be
deemed an underwriting. This restriction shall not limit a Fund's
ability to invest in securities issued by other registered investment
companies.
4. Invest in real estate or real estate limited partnership interests. (A
Fund may, however, purchase and sell securities secured by real estate
or interests therein or issued by issuers which invest in real estate
or interests therein.) This restriction does not apply to real estate
limited partnerships listed on a national stock exchange (e.g., the New
York Stock Exchange).
5. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly
traded securities of companies engaging in whole or in part in such
activities, may enter into futures contracts and related options, may
engage in transactions on a when-issued or forward commitment basis,
and may enter into forward currency contracts in accordance with its
investment policies.
6. Purchase any securities which would cause more than 25% of the value of
any Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and further provided that with respect to the Money Market Funds only,
there is no limitation with respect to investments in obligations by
banks.
Cash Reserves, Treasury Reserves, Government Reserves and Municipal Reserves may
not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding one-third of the value of total assets. Any
borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset coverage
of at least 300% is required. In the event that such asset coverage
shall at any time fall below 300%, the Fund shall, within three days
thereafter or such longer period as the SEC may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that
the asset coverage of such borrowings shall be at least 300%. This
borrowing provision is included solely to facilitate the orderly sale
of portfolio securities to accommodate heavy redemption requests if
they should occur and is not for investment purposes. All borrowings
will be repaid before making additional investments and any interest
paid on such borrowings will reduce income.
4. Make loans, except that (a) a Fund may purchase or hold debt
instruments in accordance with its investment objective and policies;
(b) may enter into repurchase agreement and non-negotiable time
deposits, provided that repurchase agreements and non-negotiable time
deposits maturing in more than seven days, illiquid restricted
securities and other securities which are not readily marketable are
not to exceed, in the aggregate, 10% of the Fund's total assets and (c)
the Funds (except Municipal Reserves) may engage in securities lending
as described in each prospectus and in this SAI.
5. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
6. Purchase or sell real estate, real estate limited partnership
interests, commodities or commodities contracts.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term
credits as necessary for the clearance of security transactions.
8. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a Fund security.
9. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder and may only
purchase securities of other money market funds. Under these rules
6
<PAGE>
and regulations, the Funds are prohibited from acquiring the securities
of other investment companies if, as a result of such acquisition, the
Funds own more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5%
of the Fund's total assets; or securities (other than treasury stock)
issued by all investment companies represent more than 10% of the total
assets of the Fund. These investment companies typically incur fees
that are separate from those fees incurred directly by the Fund. A
Fund's purchase of such investment company securities results in the
layering of expenses, such that Shareholders would indirectly bear a
proportionate share of the operating expenses of such investment
companies, including advisory fees. It is the position of the
Securities and Exchange Commission's Staff that certain nongovernmental
issues of CMOs and REMICS constitute investment companies pursuant to
the 1940 Act and either (a) investments in such instruments are subject
to the limitations set forth above or (b) the issuers of such
instruments have received orders from the SEC exempting such
instruments from the definition of investment company.
10. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above or as permitted
by rule, regulation or order of the SEC.
11. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, or partner of the Trust or Adviser of the
Trust owns beneficially more than 1/2 of 1% of the shares or securities
of such issuer and all such officers, trustees and partners owning more
than 1/2 of 1% of such shares or securities together own more than 5%
of such shares or securities.
12. Invest in interest in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
13. Write or purchase puts, calls or combinations thereof.
14. Invest in warrants valued at lower of cost or market exceeding 5% of
the Fund's net assets. Included in that amount but not to exceed 2% of
the Fund's net assets, may be warrants not listed on the New York Stock
Exchange or American Stock Exchange.
Money Market Reserves may not:
1. Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
3. Act as an underwriter of securities within the meaning of the 1933 Act
except to the extent that the purchase of obligations directly from the
issuer thereof in accordance with the Fund's investment objective,
policies and limitations may be deemed to be underwriting.
4. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities,
securities indices, futures contracts and options on futures contracts.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation
shall not apply to the Fund's transactions in futures contracts and
related options, and (b) the Fund may obtain short-term credit as may
be necessary for the clearance of purchases and sales of portfolio
securities.
6. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that the Fund may, to the
extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such
activities and may enter into futures contracts and related options.
7. Make loans, except that the Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities.
8. Purchase securities of companies for the purpose of exercising control.
7
<PAGE>
9. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or
certificates of deposit for any such securities) if, immediately after
such purchase, more than 15% of its total assets would be invested in
certificates of deposit or bankers' acceptances of any one bank, or
more than 5% of the value of the Fund's total assets would be invested
in other securities of any one bank or in the securities of any other
issuer, or more than 10% of the issuer's outstanding voting securities
would be owned by the Fund; except that up to 25% of the value of the
Fund's total assets may be invested without regard to the foregoing
limitations. For purposes of this limitation, a security is considered
to be issued by the entity (or entities) whose assets and revenues back
the security. A guarantee of a security shall not be deemed to be a
security issued by the guarantor when the value of all securities
issued and guaranteed by the guarantor, and owned by the Fund, does not
exceed 10% of the value of the Fund's total assets. In accordance with
the current regulations of the SEC, the Fund intends to limit its
investments in bankers' acceptances, certificates of deposit and other
securities of any one bank to not more than 5% of the Fund's total
assets at the time of purchase (rather than the 15% limitation set
forth above), provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three
business days. This practice, which is not a fundamental policy of the
Fund, could be changed only in the event that such regulations of the
Securities and Exchange Commission are amended in the future.
10. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to: (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, (ii) instruments issued by
domestic branches of U.S. banks; and (iii) repurchase agreements
secured by the instruments described in clauses (i) and (ii); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services; for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry. In construing Investment Limitation 10
in accordance with SEC policy, to the extent permitted, U.S. branches
of foreign banks will be considered to be U.S. banks where they are
subject to the same regulation as U.S. banks.
11. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of the total
assets at the time of such borrowing or mortgage, pledge or hypothecate
any assets, except in connection with any such borrowing and then in
amounts not in excess of one-third of the value of the Fund's total
assets at the time of such borrowing. The Fund will not purchase
securities while its borrowings (including reverse repurchase
agreements) in excess of 5% of its total assets are outstanding.
Securities held in escrow or separate accounts in connection with the
Fund's investment practices described in this SAI or in the
Prospectuses are not deemed to be pledged for purposes of this
limitation.
Although the foregoing investment limitations would permit Money Market
Reserves to invest in options, futures contracts and options on futures
contracts, the Fund does not currently intend to trade in such instruments
during the next 12 months. Prior to making any such investments, the Fund would
notify its shareholders and add appropriate descriptions concerning the
instruments to the Prospectuses and this SAI.
As stated in the Prospectuses, securities subject to unconditional
demand features acquired by Money Market Reserves must satisfy special SEC
diversification requirements. In particular, a security that has an
unconditional demand feature or other guarantee (as defined by SEC regulations)
which is issued by a person that, directly or indirectly, does not control, and
is not controlled by or under common control with, the issuer of the security
(an "Unconditional Demand Feature") is subject to the following diversification
requirements: Immediately after the acquisition of the security, Money Market
Reserves may not have invested more than 10% of its total assets in securities
issued by or subject to Unconditional Demand Features from the same person,
except that the Fund may invest up to 25% of its total assets in securities
subject to Unconditional Demand Features of persons that are rated in the
highest rating category as determined by two NRSROs (or one NRSRO if the
security is rated by only one NRSRO).
8
<PAGE>
California Tax-Exempt Reserves may not:
1. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
2. Underwrite any issue of securities within the meaning of the 1933 Act,
except when it might be technically deemed to be an underwriter either
(a) in connection with the disposition of a portfolio security, or (b)
in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective.
3. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, any state or territory of the United States, or any of
their agencies, instrumentalities or political subdivisions, and (b)
not withstanding this limitation or any other fundamental investment
limitation, assets may be invested in the securities of one or more
diversified management investment companies to the extent permitted by
the 1940 Act. Notwithstanding the above limitation, there is no
limitation with respect to investments by any of the Funds in
repurchase agreements, domestic bank obligations and certain bank
obligations considered to be issued by domestic banks purchase to
regulations or pronouncements of the Securities and Exchange Commission
or its staff.
4. Purchase or sell real estate, except a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
5. Purchase or sell commodities, except that a Fund may, to the extent
consistent with its investment objective, invest in securities of
companies that purchase or sell commodities or which invest in such
programs, and purchase and sell options, forward contracts, future
contracts and options on future contracts. This limitation does not
apply to foreign currency transactions including without limitation
forward currency contracts.
6. Make loans, except to the extent permitted by the 1940 Act.
Asset Allocation Fund, Convertible Securities Fund, California Bond Fund,
Intermediate Bond Fund and Blue Chip Fund may not:
1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either
(a) in connection with the disposition of a portfolio security, or (b)
in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective.
2. Purchase or sell real estate, except a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
3. Purchase or sell commodities, except that a Fund may to the extent
consistent with its investment objective, invest in securities of
companies that purchase or sell commodities or which invest in such
programs, and purchase and sell options, forward contracts, futures
contracts, and options on futures contracts. This limitation does not
apply to foreign currency transactions including without limitation
forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, any state or territory of the United States, or any of
their agencies, instrumentalities or political subdivisions, and (b)
notwithstanding this limitation or any other fundamental investment
limitation, assets may be invested in the securities of one or more
diversified management investment companies to the extent permitted by
the 1940 Act and the rules and regulations thereunder.
5. Make loans, except to the extent permitted by the 1940 Act.
9
<PAGE>
6. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted under the 1940
Act.
7. Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as
a result, more than 5% of its total assets will be invested in the
securities of such issuer or it would own more than 10% of the voting
securities of such issuer, except that (a) up to 25% of its total
assets may be invested without regard to these limitations and (b) a
Fund's assets may be invested in the securities of one or more
diversified management investment companies to the extent permitted by
the 1940 Act.
Each of the Marsico Focused Equities Fund, Marsico Growth & Income Fund,
International Equity Fund, International Value Fund and Emerging Markets Fund
may not:
1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either
(a) in connection with the disposition of a portfolio security, or (b)
in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction
shall not limit the Fund's ability to invest in securities issued by
other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
3. Purchase or sell commodities, except that a Fund may to the extent
consistent with its investment objective, invest in securities of
companies that purchase or sell commodities or which invest in such
programs, and purchase and sell options, forward contracts, futures
contracts, and options on futures contracts. This limitation does not
apply to foreign currency transactions including without limitation
forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, any state or territory of the United States, or any of
their agencies, instrumentalities or political subdivisions, and (b)
notwithstanding this limitation or any other fundamental investment
limitation, assets may be invested in the securities of one or more
management investment companies to the extent permitted by the 1940
Act, the rules and regulations thereunder and any exemptive relief
obtained by the Funds.
5. Make loans, except to the extent permitted by the 1940 Act, the rules
and regulations thereunder and any exemptive relief obtained by the
Funds.
6. Borrow money, issue senior securities or mortgage, pledge or
hypothecate its assets except to the extent permitted by the 1940 Act,
the rules and regulations thereunder and any exemptive relief obtained
by the Funds.
7. Except for the Marsico Focused Equities Fund, purchase securities
(except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) of any one issuer if, as a result, more
than 5% of its total assets will be invested in the securities of such
issuer or it would own more than 10% of the voting securities of such
issuer, except that (a) up to 25% of its total assets may be invested
without regard to these limitations and (b) a Fund's assets may be
invested in the securities of one or more management investment
companies to the extent permitted by the 1940 Act. The Marsico Focused
Equities Fund may not purchase securities of any one issuer (other than
U.S. Government Obligations) if, immediately after such purchase, more
than 25% of the value of a Fund's total assets would be invested in the
securities of one issuer, and with respect to 50% of such Fund's total
assets, more than 5% of its assets would be invested in the securities
of one issuer.
10
<PAGE>
NR Funds' Non-Fundamental Policy Restrictions
---------------------------------------------
With respect to Asset Allocation Fund, Convertible Securities Fund, California
Bond Fund, Intermediate Bond Fund and Blue Chip Fund:
1. Asset Allocation Fund, Convertible Securities Fund, California Bond
Fund, Intermediate Bond Fund and Blue Chip Fund may not: sell
securities short, maintain a short position, or purchase securities on
margin, except for such short-term credits as are necessary for the
clearance of transactions. For this purpose, a deposit or payment by a
Fund for initial or maintenance margin in connection with future
contracts is not considered to be the purchase or sale of a security on
margin.
2. Asset Allocation Fund, Convertible Securities Fund, California Bond
Fund, Intermediate Bond Fund and Blue Chip Fund may not purchase
securities of other investment companies except as permitted by the
1940 Act.
3. California Bond Fund may not purchase securities of companies for the
purpose of exercising control.
4. Intermediate Bond Fund, Blue Chip Fund, Asset Allocation Fund,
Convertible Securities Fund and California Bond Fund may not write or
sell puts, calls, straddles, spreads or combinations thereof except
that a Fund may acquire standby commitments and may enter into futures
contracts and options in accordance with their investment objectives.
With respect to Marsico Focused Equities Fund, Marsico Growth & Income Fund,
International Equity Fund, International Value Fund and Emerging Markets Fund,
each may:
1. Not invest in shares of other open-end management investment companies,
subject to the limitations of the Investment Company Act of 1940 (the
"1940 Act"), the rules thereunder, and any orders obtained thereunder
now or in the future. Funds in a master/feeder structure generally
invest in the securities of one or more open-end management investment
companies pursuant to various provisions of the 1940 Act, its rules and
regulations and any exemptive relief obtained by the Funds. Other
investment companies in which the Funds invest can be expected to
charge fees for operating expenses, such as investment advisory and
administration fees, that would be in addition to those charged by a
Fund.
2. Invest or hold more than 15% (10% in the case of a money market fund)
of the Fund's net assets in illiquid securities. For this purpose,
illiquid securities include, among others, (a) securities that are
illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable
within seven days.
3. Not hedge more than 50% of its total assets by selling futures
contracts, buying put options, and writing call options (so called
"short positions"), not buy futures contracts or write put options
whose underlying value exceeds 25% of the Fund's total assets, and not
buy call options with a value exceeding 5% of the Fund's total assets.
4. Lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily.
The Fund will not enter into any portfolio security lending arrangement
having a duration of longer than one year.
5. Not make investments for the purpose of exercising control or
management. (Investments by the Fund in entities created under the laws
of foreign countries solely to facilitate investment in securities in
that country will not be deemed the making of investments for the
purpose of exercising control.)
6. Not purchase securities on margin (except for short-term credits
necessary for the clearance of transactions).
7. Not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.
11
<PAGE>
8. Not purchase interests, leases, or limited partnership interests in
oil, gas, or other mineral exploration or development programs.
With respect to Treasury Reserves and California Tax-Exempt Reserves only:
1. Treasury Reserves may not write covered call options or purchase put
options as long as the Fund invests exclusively in U.S. Treasury
obligations, separately traded component parts of such obligations
transferable through the Federal book-entry system, and repurchase
agreements involving such obligations.
2. California Tax-Exempt Reserves may not purchase the securities of any
issuer (except securities issued by the U.S. Government, its agencies
or instrumentalities) if as a result more than 5% of the value of the
Fund's total assets would be invested in the securities of such issuer
except that (a) up to 50% of the value of the Fund's total assets may
be invested without regard to this 5% limitation provided that no more
than 25% of the value of the Fund's total assets are invested in the
securities of any one issuer; (b) a Fund's assets may be invested in
the securities of one or more diversified management investment
companies to the extent permitted by 1940 Act and (c) the 5% limitation
may be temporarily exceeded provided that the discrepancy is eliminated
as the end of the quarter or within 30 days thereafter.
Notwithstanding the foregoing restriction, California Tax-Exempt
Reserves invests without regard to 5% limitation in securities subject
to certain guarantees and certain money market Fund securities in
accordance with Rule 2a-7 under 1940 Act or any successor rule, and
otherwise permitted in accordance with Rule 2a-7 or any successor rule.
California Tax-Exempt Reserves may not purchase securities of any one
issuer (other than U.S. Government Obligations) if, immediately after
such purchase, more than 25% of the value of a Fund's total assets
would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be
invested in the securities of one issuer.
With respect to Treasury Reserves, Cash Reserves, Nations Money Market Reserves,
Government Reserves, Municipal Reserves and California Tax-Exempt Reserves, each
may:
1. Invest in shares of other open-end management investment companies,
subject to the limitations of the 1940 Act, the rules thereunder, and
any orders obtained thereunder now or in the future. Funds in a
master/feeder structure generally invest in the securities of one or
more open-end management investment companies pursuant to various
provisions of the 1940 Act.
2. Not invest or hold more than 10% of the Fund's net assets in illiquid
securities. For this purpose, illiquid securities include, among
others, (a) securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on
resale, (b) fixed time deposits that are subject to withdrawal
penalties and that have maturities of more than seven days, and (c)
repurchase agreements not terminable within seven days.
3. Invest in futures or options contracts regulated by the CFTC for (i)
bona fide hedging purposes within the meaning of the rules of the CFTC
and (ii) for other purposes if, as a result, no more than 5% of a
Fund's net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the contracts.
A Fund (i) will not hedge more than 50% of its total assets by selling
futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will not buy futures contracts or write
put options whose underlying value exceeds 25% of the Fund's total
assets, and (iii) will not buy call options with a value exceeding 5%
of the Fund's total assets.
4. Lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily.
12
<PAGE>
5. Not make investments for the purpose of exercising control of
management. (Investments by the Fund in entities created under the laws
of foreign countries solely to facilitate investment in securities in
that country will not be deemed the making of investments for the
purpose of exercising control.)
6. Not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of a purchase of such
security.
NFT and NFI Funds' Fundamental Policy Restrictions
--------------------------------------------------
Each Fund (except with respect to certain Funds whose restrictions are
enumerated separately) may not:
1. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of such purchase to be invested in
the securities of one or more issuers conducting their principal
activities in the same industry, provided that this limitation does not
apply to investments in U.S. Government Obligations. In addition, this
limitation does not apply to investments by "money market funds" as
that term is used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately
placed), may enter into repurchase agreements and may lend portfolio
securities in accordance with its investment policies.
3. Purchase securities of any one issuer (other than U.S. Government
Obligations) if, immediately after such purchase, more than 5% of the
value of such Fund's total assets would be invested in the securities
of such issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to these limitations and with
respect to 75% of such Fund's assets, such Fund will not hold more than
10% of the voting securities of any issuer.
4. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) a Fund may borrow money from banks for temporary
purposes in amounts up to one-third of the value of such Fund's total
assets at the time of borrowing, provided that borrowings in excess of
5% of the value of such Fund's total assets will be repaid prior to the
purchase of additional portfolio securities by such Fund, (b) a Fund
may enter into commitments to purchase securities in accordance with
the Fund's investment program, including delayed delivery and
when-issued securities, which commitments may be considered the
issuance of senior securities, and (c) a Fund may issue multiple
classes of shares in accordance with SEC regulations or exemptions
under the 1940 Act. The purchase or sale of futures contracts and
related options shall not be considered to involve the borrowing of
money or issuance of senior securities. Each Fund may enter into
reverse repurchase agreements or dollar roll transactions. The purchase
or sale of futures contracts and related options shall not be
considered to involve the borrowing of money or issuance of senior
securities.
5. Purchase any securities on margin (except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities) or sell any securities short (except against the box.) For
purposes of this restriction, the deposit or payment by the Fund of
initial or maintenance margin connection with futures contracts and
related options and options on securities is not considered to be the
purchase of a security on margin.
6. Underwrite securities issued by any other person, except to the extent
that the purchase of securities and the later disposition of such
securities in accordance with the Fund's investment program may be
deemed an underwriting. This restriction shall not limit a Fund's
ability to invest in securities issued by other registered investment
companies.
7. Invest in real estate or real estate limited partnership interests. (A
Fund may, however, purchase and sell securities secured by real estate
or interests therein or issued by issuers which invest in real estate
or interests therein.) This restriction does not apply to real estate
limited partnerships listed on a national stock exchange (e.g., the New
York Stock Exchange).
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<PAGE>
8. Purchase or sell commodity contracts except that each Fund may, to the
extent appropriate under its investment policies, purchase publicly
traded securities of companies engaging in whole or in part in such
activities, may enter into futures contracts and related options, may
engage in transactions on a when-issued or forward commitment basis,
and may enter into forward currency contracts in accordance with its
investment policies.
The International Growth Fund may not:
Borrow money except as a temporary measure and then only in amounts not
exceeding 5% of the value of the Fund's total assets or from banks or in
connection with reverse repurchase agreements provided that immediately after
such borrowing, all borrowings of the Fund do not exceed one-third of the Fund's
total assets and no purchases of portfolio instruments will be made while the
Fund has borrowings outstanding in an amount exceeding 5% of its total assets.
Each of the Small Company Fund and the U.S. Government Bond Fund may not:
Borrow money except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse repurchase agreements
and mortgage rolls; provided that the respective Fund will maintain asset
coverage of 300% for all borrowings.
If a percentage limitation has been met at the time an investment is
made, a subsequent change in that percentage that is the result of a change in
value of a Fund's portfolio securities does not mean that the limitation has
been violated.
In addition, the Small Company Fund and the Government Bond Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalists or
certificates of deposit for any such securities) if, immediately after
such purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund
or the Company; except that up to 25% of the value of a Fund's total
assets may be invested without regard to the foregoing limitations. For
purposes of this limitation, (a) a security is considered to be issued
by the entity (or entities) whose assets and revenues back the security
and (b) a guarantee of a security shall not be deemed to be a security
issued by the guarantor when the value of securities issued and
guaranteed by the guarantor, and owned by the Fund, does not exceed 10%
of the value of the Fund's total assets. Each Fund will maintain asset
coverage of 300% or maintain a segregated account with its custodian
bank in which it will maintain cash, U.S. Government Securities or
other liquid high grade debt obligations equal in value to its
borrowing.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions and (ii) repurchase
agreements secured by the instruments described in clause (i); (b)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of the parents; and (c) utilities will be
divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be
considered a separate industry or (iii) with respect to the Small
Company Fund, instruments issued by domestic branches of U.S. Banks.
Purchase or sell real estate, except that the Fund may purchase
securities of issuers which deal in real estate and may purchase
securities which are secured by interest in real estate.
The investment objective and policies of each Fund, unless otherwise
specified, are non-fundamental and may be changed without shareholder approval.
Shareholders of the International Growth Fund, Small Company Fund and U.S.
Government Bond Fund, however, must receive at least 30 days' prior written
notice in the event an investment objective is changed. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
NFT and NFI Funds' Non-Fundamental Policy Restrictions
------------------------------------------------------
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In addition, certain non-fundamental investment restrictions are also
applicable to the Funds, including the following:
1. No Fund will purchase or retain the securities of any issuer if the
officers, or directors of the Company, its advisers, or managers owning
beneficially more than one half of one percent of the securities of
each issuer together own beneficially more than five percent of such
securities.
2. No Fund will purchase securities of unseasoned issuers, including their
predecessors, that have been in operation for less than three years, if
by reason thereof the value of such Fund's investment in such classes
of securities would exceed 5% of such Fund's total assets. For purposes
of this limitation, issuers include predecessors, sponsors, controlling
persons, general partners, guarantors and originators of underlying
assets which have less than three years of continuous operation or
relevant business experience.
3. No Fund will purchase puts, calls, straddles, spreads and any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its total
assets except that: (a) this restriction shall not apply to standby
commitments, (b) this restriction shall not apply to a Fund's
transactions in futures contracts and related options, and (c) a Fund
may obtain short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or market,
in excess of 5% of the value of such Fund's assets, and no more than 2%
of the value of the Fund's net assets may be invested in warrants that
are not listed on the New York or American Stock Exchange (for purposes
of this undertaking, warrants acquired by a Fund in units or attached
to securities will be deemed to have no value).
5. No Money Market Fund may purchase securities of any one issuer (other
than obligations issued or guaranteed by the U.S. Government, its
agencies, authorities or instrumentalities and repurchase agreements
fully collateralized by such obligations) if, immediately after such
purchase, more than 5% of the value of the Fund's assets would be
invested in the securities of such issuer. Notwithstanding the
foregoing, up to 25% of each Fund's total assets may be invested for a
period of three business days in the first tier securities of a single
issuer without regard to such 5% limitation.
6. No Fund will purchase securities of companies for the purpose of
exercising control.
7. No Money Market Fund will invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements, time
deposits and GICs with maturities in excess of seven days, illiquid
restricted securities, and other securities which are not readily
marketable. For purposes of this restriction, illiquid securities shall
not include securities which may be resold under Rule 144A and Section
4(2) of the Securities Act of 1933 that the Board of Directors, or its
delegate, determines to be liquid, based upon the trading markets for
the specific security.
8. No Non-Money Market Fund will invest more than 15% of the value of its
net assets in illiquid securities, including repurchase agreements,
time deposits and GICs with maturities in excess of seven days,
illiquid restricted securities, and other securities which are not
readily marketable. For purposes of this restriction, illiquid
securities shall not include securities which may be resold under Rule
144A and Section 4(2) of the Securities Act of 1933 that the Board of
Directors, or its delegate, determines to be liquid, based upon the
trading markets for the specific security.
9. No Fund will mortgage, pledge or hypothecate any assets except to
secure permitted borrowings and then only in an amount up to one-third
of the value of the Fund's total assets at the time of borrowing. For
purposes of this limitation, collateral arrangements with respect to
the writing of options, futures contracts, options on futures
contracts, and collateral arrangements with respect to initial and
variation margin are not considered to be a mortgage, pledge or
hypothecation of assets.
10. No Fund will invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or
acquisition of assets and except to the extent otherwise permitted by
the 1940 Act.
11. No Fund will purchase oil, gas or mineral leases or other interests (a
Fund may, however, purchase and sell the securities of companies
engaged in the exploration, development, production, refining,
transporting and marketing of oil, gas or minerals).
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Small Company Fund and Government Bond Fund may not:
Lend its securities if collateral values are not continuously maintained at
no less than 100% by market to market daily.
Government Bond Fund may not:
1. Purchase equity securities of issuers that are not readily marketable
if the value of a Fund's aggregate investment in such securities will
exceed 5% of its total assets.
2. Purchase securities of issuers restricted as to disposition if the
value of its aggregate investment in such classes of securities will
exceed 10% of its total assets.
The Tax Exempt Fund may not:
Purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
NFST's Fundamental Policy Restrictions
--------------------------------------
Each Fund may not:
1. Underwrite any issue of securities within the meaning of the 1933 Act
except when it might technically be deemed to be an underwriter either
(a) in connection with the disposition of a portfolio security, or (b)
in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction
shall not limit the Fund's ability to invest in securities issued by
other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate.
3. Purchase or sell commodities, except that a Fund may to the extent
consistent with its investment objective, invest in securities of
companies that purchase or sell commodities or which invest in such
programs, and purchase and sell options, forward contracts, futures
contracts, and options on futures contracts. This limitation does not
apply to foreign currency transactions including without limitation
forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, any state or territory of the United States, or any of
their agencies, instrumentalities or political subdivisions, and (b)
notwithstanding this limitation or any other fundamental investment
limitation, assets may be invested in the securities of one or more
management investment companies to the extent permitted by the 1940
Act, the rules and regulations thereunder and any exemptive relief
obtained by the Funds.
5. Make loans, except to the extent permitted by the 1940 Act, the rules
and regulations thereunder and any exemptive relief obtained by the
Funds.
6. Borrow money or issue senior securities except to the extent permitted
by the 1940 Act, the rules and regulations thereunder and any exemptive
relief obtained by the Funds.
7. Except for the Kansas Fund, purchase securities (except securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) of any one issuer if, as a result, more than 5% of
its total assets will be invested in the securities of such issuer or
it would own more than 10% of the voting securities of such issuer,
except that (a) up to 25% of its total assets may be invested without
regard to these limitations and (b) a Fund's assets may be invested in
the securities of one or more management investment
16
<PAGE>
companies to the extent permitted by the 1940 Act, the rules and
regulations thereunder and any exemptive relief obtained by the Funds.
NFST's Non-Fundamental Policy Restrictions
------------------------------------------
Each Fund may:
1. Invest in shares of other open-end management investment companies,
subject to the limitations of the 1940 Act, the rules thereunder, and
any orders obtained thereunder now or in the future. Funds in a
master/feeder structure generally invest in the securities of one or
more open-end management investment companies pursuant to various
provisions of the 1940 Act.
2. Not invest or hold more than 15% (10% in the case of a money market
fund) of the Fund's net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities that
are illiquid by virtue of the absence of a readily available market or
legal or contractual restrictions on resale, (b) fixed time deposits
that are subject to withdrawal penalties and that have maturities of
more than seven days, and (c) repurchase agreements not terminable
within seven days.
3. Invest in futures or options contracts regulated by the CFTC for (i)
bona fide hedging purposes within the meaning of the rules of the CFTC
and (ii) for other purposes if, as a result, no more than 5% of a
Fund's net assets would be invested in initial margin and premiums
(excluding amounts "in-the-money") required to establish the contracts.
A Fund (i) will not hedge more than 50% of its total assets by selling
futures contracts, buying put options, and writing call options (so
called "short positions"), (ii) will not buy futures contracts or write
put options whose underlying value exceeds 25% of the Fund's total
assets, and (iii) will not buy call options with a value exceeding 5%
of the Fund's total assets.
4. Lend securities from its portfolio to brokers, dealers and financial
institutions, in amounts not to exceed (in the aggregate) one-third of
the Fund's total assets. Any such loans of portfolio securities will be
fully collateralized based on values that are marked to market daily.
5. Not make investments for the purpose of exercising control of
management. (Investments by the Fund in entities created under the laws
of foreign countries solely to facilitate investment in securities in
that country will not be deemed the making of investments for the
purpose of exercising control.)
6. Not sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
(short sales "against the box"), and provided that transactions in
futures contracts and options are not deemed to constitute selling
securities short.
7. The Kansas Fund may not purchase securities of any one issuer (other
than U.S. Government Obligations) if, immediately after such purchase,
more than 25% of the value of a Fund's total assets would be invested
in the securities of one issuer, and with respect to 50% of such Fund's
total assets, more than 5% of its assets would be invested in the
securities of one issuer.
For purposes of the foregoing limitations, any limitation that involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings on behalf of, a Fund.
Permissible Fund Investments
In addition to the principal investment strategies for each Fund, which
are outlined in the Funds' prospectuses, each Fund also may invest in other
types of securities in percentages of less than 10% of its total assets (unless
otherwise indicated, e.g., most Funds may invest in money market instruments
without limit during temporary defensive periods). These types of securities are
listed below for each portfolio and then are described in more detail after this
sub-section.
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<PAGE>
The Domestic Stock Funds
Value Fund: In addition to the types of securities described in its
Prospectus, the Fund may invest in: U.S. Treasury bills, notes and bonds and
other instruments issued directly by the U.S. Government ("U.S. Treasury
Obligations"), other obligations issued or guaranteed as to payment of principal
and interest by the U.S. Government, its agencies and instrumentalities
(together with U.S. Treasury Obligations, "U.S. Government Obligations");
investment grade debt securities of domestic companies; various money market
instruments and repurchase agreements.
Equity Income Fund: In addition to the types of securities described in
its Prospectus, the Fund may invest in convertible securities and also the
securities described in the General Section below.
MidCap Growth Fund: See General Section below.
Small Company Fund: In addition to the types of securities described in
its Prospectus, the Fund may invest in debt securities, unless the Fund assumes
a temporary defensive position. Debt securities, if any, purchased by the Fund
will be rated "AA" or above by S&P or "Aa" or above by Moody's or, if unrated,
determined by the Adviser to be of comparable quality. For temporary defensive
purposes, the Fund may invest up to 100% of its assets in debt securities,
including short-term and intermediate-term obligations of corporations, the U.S.
and foreign governments and international organizations such as the World Bank,
and money market instruments. The Fund may invest in common stocks (including
convertible into common stocks) of foreign issuers and rights to purchase common
stock, options and futures contracts on securities, securities indexes and
foreign currencies, securities lending, forward foreign exchange contracts and
repurchase agreements.
Aggressive Growth Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: a broad range of equity and
debt instruments, including preferred stocks, securities (debt and preferred
stock) convertible into common stock, warrants and rights to purchase common
stocks, options, U.S. Government and corporate debt securities and various money
market instruments. The Fund's investments in debt securities, including
convertible securities, will be limited to securities rated investment grade
(e.g., securities rated in one of the top four investment categories by an NRSRO
or, if not rated, are of equivalent quality as determined by the Adviser). For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments, money
market instruments and repurchase agreements.
Capital Growth Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: preferred stocks, securities (debt
and preferred stock) convertible into common stock, warrants and rights to
purchase common stocks, other types of securities having common stock
characteristics and various money market instruments, including repurchase
agreements. The Fund may invest in foreign securities, including common stocks
(including convertible into common stocks) of foreign issuers and rights to
purchase common stock, options and futures contracts on securities, securities
indexes and foreign currencies, securities lending, forward foreign exchange
contracts.
Marsico Focused Equities Fund, Marsico Growth & Income Fund, Marsico
21st Century Fund, and Marsico International Opportunities Fund: In addition to
the types of securities described in their Prospectuses, the Master Portfolios
(in which the Funds invests all of their assets) may invest in: preferred stock,
warrants, convertible securities and debt securities; zero coupon, pay-in-kind
and step coupon securities, and may invest without limit in indexed/structured
securities. The Master Portfolios also may invest its assets in
high-yield/high-risk securities, such as lower grade debt securities, high-grade
commercial paper, certificates of deposit, and repurchase agreements, and may
invest in short-term debt securities as a means of receiving a return on idle
cash.
The Master Portfolios may hold cash or cash equivalents and invest
without limit in U.S. Government Obligations and short-term debt securities or
money market instruments when the Adviser: (i) believes that the market
conditions are not favorable for profitable investing, (ii) is unable to locate
favorable investment opportunities, or (iii) determines that a temporary
defensive position is advisable or necessary to meet anticipated redemption
request. In other words, the Master Portfolios do not always stay fully invested
in stocks and bonds. The Master Portfolios also may use options, futures,
forward currency contracts and other types of derivatives for hedging purposes
or for non-hedging purposes such as seeking to enhance return. The Master
Portfolios also may purchase securities on a when-issued, delayed delivery or
forward commitment basis.
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<PAGE>
General: Notwithstanding that each Domestic Stock Fund (or Master
Portfolio as the case may be) may invest in each type of security listed above
in percentages of less than 10% of that Fund's total assets, each Domestic Stock
Fund (except the Marsico Focused Equities Master Portfolio, the Marsico Growth &
Income Master Portfolio, the Marsico 21st Century, and the Marsico International
Opportunities Master Portfolio) may invest up to 20% of its assets in foreign
securities. While each Domestic Stock Fund reserves the right to so invest,
investing in foreign securities is not considered a principal investment
strategy of the Domestic Stock Funds.
In addition, each Domestic Stock Fund discussed above also may invest
in certain specified derivative securities including: exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls to enhance return; and U.S. and foreign exchange-traded
financial futures approved by the Commodity Futures Trading Commission ("CFTC")
and options thereon for market exposure risk management. Each Domestic Stock
Fund may lend its portfolio securities to qualified institutional investors and
may invest in repurchase agreements, restricted, private placement and other
illiquid securities. Each Domestic Stock Fund also may invest in real estate
investment trust securities. Each Domestic Stock Fund (except the Nations
Marsico Funds) may invest in Standard & Poor's Depositary Receipts ("SPDRs"). In
addition, each Domestic Stock Fund may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies and repurchase agreements. The Marsico Focused Equities Master
Portfolio and Marsico Growth & Income Master Portfolio may invest in forward
foreign exchange contracts.
Asset Allocation Fund: In addition to the types of securities described
in the Fund's Prospectus, the Fund may invest in: certain specified derivative
securities, including interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and
CFTC-approved U.S. and foreign exchange-traded financial futures and options
thereon for market exposure risk-management. The Fund may lend its Fund
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. The
Fund may engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies. The
Fund also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
investments backed by, the securities and other assets owned by such trusts and
partnerships.
Blue Chip Fund: In addition to the types of securities described in the
Fund's Prospectus, the Blue Chip Master Portfolio (in which the Fund invests all
of its assets) may invest in cash equivalents, which include the following
short-term interest rate bearing instruments--obligations issued or guaranteed
by the U.S. Government, its agencies and instrumentalities (some of which may be
subject to repurchase agreements), certificates of deposit, bankers'
acceptances, time deposits and other interest-bearing deposits issued by
domestic and foreign banks and foreign branches of U.S. banks, foreign
government securities and commercial papers issued by U.S. and foreign issuers
which is rated at the time of purchase at least Prime-2 by Moody's or A-2 by
S&P, Duff & Phelps and Fitch IBCA. For a description of ratings, see Appendix A
to this SAI. The Master Portfolio also may invest in certain specified
derivative securities including: exchange-traded options, over-the-counter
options executed with primary dealers, including long calls and puts and covered
calls to enhance return; and CFTC-approved U.S. and foreign exchange-traded
financial futures and options thereon for market exposure risk-management. The
Master Portfolio also may lend its portfolios securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. It also may invest in real
estate investment trust securities, securities issued by other investment
companies, consistent with the Master Portfolio's investment objective and
policies.
The International Stock Funds
International Equity Fund: In addition to the types of securities
described in its Prospectus, the Master Portfolio (in which the Fund invests all
of its assets) may invest in: real estate investment trust securities and, for
temporary defensive purposes, substantially all of its assets in U.S. financial
markets or U.S. dollar-denominated instruments. The Master Portfolio also may
invest in convertible securities, preferred stocks, bonds, notes and other
fixed-income securities, including Eurodollar and foreign government securities.
International Growth Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: options and futures
contracts on securities, securities lending, forward foreign exchange contracts
and repurchase agreements. The Fund also may invest in American Depositary
Receipts ("ADRs"), Global Depositary
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Receipts ("GDRs"), European Depositary Receipts ("EDRs") and American Depositary
Shares ("ADSs"). For temporary defensive purposes, the Fund may invest
substantially all of its assets in U.S. financial markets or U.S.
dollar-denominated instruments.
International Value Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: short-term debt
instruments; purchase and write covered call options on specific portfolio
securities and may purchase and write put and call options on foreign stock
indices listed on foreign and domestic exchanges options and futures contracts
on securities, securities lending, forward foreign exchange contracts and
repurchase agreements. The Fund also may invest in ADRs, GDRs, EDRs and ADSs and
invest in foreign currency exchange contracts to convert foreign currencies to
and from the U.S. dollar, and to hedge against changes in foreign currency
exchange rates.
Emerging Markets Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: debt instruments; foreign investment
funds or trusts, real estate investment trust securities, ADRs, GDRs, EDRs and
ADSs. For temporary defensive purposes, substantially all of its assets in U.S.
financial markets or U.S. dollar-denominated instruments.
General: Each Fund also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures approved by the
CFTC and options thereon for market exposure risk management. Each Fund may lend
its portfolio securities to qualified institutional investors and may invest in
repurchase agreements, restricted, private placement and other illiquid
securities. Each International Stock Fund also may invest in real estate
investment trust securities. In addition, each International Stock Fund may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies and repurchase agreements. Each Fund
also may invest in forward foreign exchange contracts.
The Index Funds
LargeCap Index Funds Managed Index Fund, SmallCap Index Fund, and
MidCap Index Fund: With respect to the LargeCap Index Fund, the management team
generally will try to match the composition of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500") as closely as possible. The team
starts with the stocks that make up a larger portion of the value of the S&P
500. It may not always invest in stocks that make up the smaller percentages
because it may be more difficult and costly to make relatively small
transactions. The team may remove a stock from the Fund's holdings or not invest
in a stock if it believes that the stock is not liquid enough, or for other
reasons. The team can substitute stocks that are not included in the S&P 500, if
it believes these stocks have similar characteristics.
With respect to the MidCap Index Fund, the management team generally
will try to match the composition of the Standard & Poor's MidCap 400 Stock
Price Index ("S&P MidCap 400") as closely as possible. The team starts with the
stocks that make up a significant portion of the value of the S&P MidCap 400. It
may not always invest in stocks that make up the smaller percentages because it
may be more difficult and costly to make relatively small transactions. The team
can substitute stocks that are not included in the S&P MidCap 400, if it
believes these stocks have similar characteristics.
With respect to the SmallCap Index Fund, the management team generally
will try to match the composition of the Standard & Poor's SmallCap 600 Stock
Price Index ("S&P SmallCap 600") as closely as possible. The team starts with
the stocks that make up a significant portion of the value of the S&P SmallCap
600. It may not always invest in stocks that make up the smaller percentages
because it may be more difficult and costly to make relatively small
transactions. The team can substitute stocks that are not included in the S&P
SmallCap 600, if it believes these stocks have similar characteristics. In
addition to the types of securities described in their Prospectuses, the Funds
may invest in short-term debt securities and money market instruments The Funds
may invest without limitation in high-quality short-term debt securities and
money market instruments, domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. Government Obligations and
repurchase agreements. The Funds also may invest in certain specified derivative
securities including: exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return, equity swap contracts; and U.S. exchange-traded financial futures
approved by the CFTC and options thereon for market exposure risk management.
The Funds may lend securities and may invest in repurchase agreements,
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<PAGE>
restricted, private placement and other illiquid securities. The Funds also may
invest in Standard & Poor's Depositary Receipts ("SPDRs"). In addition, the
Funds may invest in other securities issued by other investment companies.
In addition, when consistent with such Funds' respective investment
objective, the Funds may employ various techniques to manage capital gain
distributions. These techniques include utilizing a share identification
methodology whereby the Fund will specifically identify each lot of shares of
Fund securities that it holds, which will allow the Funds to sell first those
specific shares with the highest tax basis in order to reduce the amount of
recognized capital gains as compared with a sale of identical Fund securities,
if any, with a lower tax basis. A Fund will sell first those shares with the
highest tax basis only when it is in the best interest of the Fund to do so, and
reserves the right to sell other shares when appropriate. In addition, the Funds
may, at times, sell Fund securities in order to realize capital losses. Such
capital losses would be used to offset realized capital gains thereby reducing
capital gain distributions. Additionally, the Adviser will, consistent with the
Fund construction process discussed above, employ a low Fund turnover strategy
designed to defer the realization of capital gains.
The Index Funds incur transaction (brokerage) costs in connection with
the purchase and sale of Fund securities. For some funds, these costs can have a
material negative impact on performance. With respect to the Funds, the Adviser
will attempt to minimize these transaction costs by utilizing program trades and
computerized exchanges called "crossing networks."
Balanced Fund
Balanced Assets Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: foreign securities, certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes; exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. The Fund also may invest in
Standard & Poor's Depositary Receipts ("SPDRs"). The Fund may lend its Fund
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. The
Fund may engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Fund may purchase securities issued by other investment
companies, consistent with the Fund's investment objective and policies. The
Fund also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
investments backed by, the securities and other assets owned by such trusts and
partnerships.
Government and Corporate Bond Funds
Short-Term Income Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: foreign securities,
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments, real estate investment trust securities,
municipal securities rated by one nationally recognized statistical rating
organization ("NRSRO"), or if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated, high quality money market
instruments, repurchase agreements and cash.
Short-Intermediate Government Fund: In addition to the types of
securities described in its Prospectus, the Fund may invest in: corporate
convertible and non-convertible debt obligations, including bonds, notes and
debentures rated investment grade at the time of purchase by one of the NRSROs,
or if not so rated, determined by the Adviser to be of comparable quality to
instruments so rated; dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations ("CMOs"), real
estate investment trust securities or mortgage-backed bonds; other asset-backed
securities and municipal securities rated by one of the NRSROs or if not so
rated, determined by the Adviser to be of comparable quality. The Fund also may
invest in "high quality" money market instruments, repurchase agreements and
cash. Such obligations may include those issued by foreign banks and foreign
branches of U.S. banks.
Government Securities Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments; mortgage-related securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities and municipal securities rated by one of the NRSROs
or if not so rated, determined by the Adviser to be of comparable quality. The
Fund also may invest in
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"high quality" money market instruments, repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks.
Bond Fund: In addition to the types of securities described in its
Prospectus, the Fund may invest in: foreign securities, corporate convertible
and non-convertible debt obligations, including bonds, notes and debentures
rated investment grade at the time of purchase by one of the NRSROs, or if not
so rated, determined by the Adviser to be of comparable quality to instruments
so rated; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-related securities of
governmental issuers, their agencies or instrumentalities, or of private
issuers, including mortgage pass-through certificates, CMOs, and real estate
investment trust securities. The Fund also may invest in "high quality" money
market instruments, repurchase agreements and cash. Such obligations may include
those issued by foreign banks and foreign branches of U.S. banks.
Strategic Income Fund: In addition to the types of securities described
in its Prospectus, the Fund may invest in: foreign securities, asset-backed
securities and municipal securities rated by one of the NRSROs, or if not so
rated, determined by the Adviser to be of comparable quality. The Fund also may
invest in "high quality" money market instruments, repurchase agreements and
cash. Such obligations may include those issued by foreign banks and foreign
branches of U.S. banks.
U.S. Government Bond Fund: In addition to the types of securities
described in its Prospectus, the Fund may invest in: CMOs issued or guaranteed
by a U.S. Government agency or instrumentality, ADRs, EDRs, cash equivalents,
futures contracts, interest rate swaps and options.
Convertible Securities Fund: In addition to the types of securities
described in the Fund's Prospectus, the Fund may invest in: Eurodollar
convertible securities, securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities, money market securities, investment grade
debt securities, cash equivalents, options, securities purchase on a
when-issued, forward-commitment or delayed-settlement basis. The Fund also may
invest in: certain specified derivative securities including: exchange-traded
options, over-the-counter options executed with primary dealers, including long
calls and puts and covered calls; and CFTC-approved U.S. and foreign
exchange-traded financial futures and options thereon for market exposure
risk-management. The Fund also may lend its portfolios securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. It also may invest in real
estate investment trust securities, securities issued by other investment
companies, consistent with the Fund's investment objective and policies.
Intermediate Bond Fund: In addition to the types of securities
described in the Fund's Prospectus, the Master Portfolio (in which the Fund
invests all of its assets) may invest in: municipal securities, cash
equivalents, certain specified derivative securities, including: interest rate
swaps, caps and floors for hedging purposes; exchange-traded options;
over-the-counter options executed with primary dealers, including long calls and
puts and covered calls to enhance return; and CFTC-approved U.S. and foreign
exchange-traded financial futures and options thereon for market exposure
risk-management. The Master Portfolio may lend its securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. The Master Portfolio may engage
in reverse repurchase agreements and dollar roll transactions. Additionally, the
Master Portfolio may purchase securities issued by other investment companies,
consistent with its investment objective and policies. The Master Portfolio also
may invest in instruments issued by trusts or certain partnerships including
pass-through certificates representing participations in, or debt investments
backed by, the securities and other assets owned by such trusts and
partnerships.
High Yield Fund: In addition to the types of securities described in
its Prospectuses, the Master Portfolio (in which the Fund invests all of its
assets) may invest in: debt securities, which include all types of debt
obligations of both domestic and foreign issuers, such as bonds, debentures,
notes, equipment lease certificates, equipment trust certificates, conditional
sales contracts, commercial paper and U.S. government securities (including
obligations, such as repurchase agreements, secured by such instruments). The
debt securities in which the Master Portfolio invests may be in non-dollar
denominated foreign currency and may include debt issued by countries or
corporations located in emerging market countries. The Master Portfolio may
invest in participation interests in loans and high yield convertible
securities. Such participation interests, which may take the form of interests
in, or assignments of, loans, are acquired from banks which have made loans or
are members of lending syndicates. The Master Portfolio's investments in loan
participation interests will be subject to its limitation on investments in
illiquid securities and, to the extent applicable, its limitation on investments
in securities rated below investment grade.
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General: Each of the Government and Corporate Bond Funds discussed
above may invest in certain specified derivative securities, including: interest
rate swaps, caps and floors, exchange-traded options, over-the-counter options
executed with primary dealers, including long term calls and puts and covered
calls, U.S. and foreign exchange-traded financial futures and options thereon
approved by the CFTC for market exposure risk management, eurodollar contracts,
certain private placements and certain non-U.S. dollar denominated fixed-income
securities. The Bond Fund, Strategic Income Fund and Intermediate Bond Fund may
invest in the aforementioned types of securities for the purpose of hedging and
for the separate purpose of enhancing the yield of each such Fund.
Each of the Funds also may lend their portfolio securities to qualified
institutional investors and may invest in repurchase agreements, restricted,
private placement and other illiquid securities. Each of the Funds may engage in
reverse repurchase agreements and in dollar roll transactions. Additionally,
each Fund may purchase securities issued by other investment companies,
consistent with the Funds' investment objectives and policies. The Funds also
may invest in instruments issued by trusts or certain partnerships including
pass-through certificates representing participations in, or debt instruments
backed by, the securities and other assets owned by such trusts and
partnerships.
National Municipal Bond Funds
Short-Term Municipal Income Fund, Intermediate Municipal Income Fund
and Municipal Income Fund: In addition to the types of securities described in
their Prospectuses, the Funds may invest in certain specified derivative
securities, including interest rate swaps, caps and floors for hedging purposes;
exchange-traded options, over-the-counter options executed with primary dealers,
including long term calls and puts and covered calls; and U.S. and foreign
exchange-traded financial futures and options thereon approved by the CFTC for
market exposure risk management. Each of the Funds also may lend their portfolio
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities.
Additionally, each Fund may purchase securities issued by other investment
companies, consistent with the Funds' investment objectives and policies. The
Funds also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
State Municipal Bond Funds and State Intermediate Municipal Bond Funds
Florida Intermediate Municipal Bond Fund, Georgia Intermediate
Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund, North Carolina
Intermediate Municipal Bond Fund, South Carolina Intermediate Municipal Bond
Fund, Tennessee Intermediate Municipal Bond Fund, Texas Intermediate Municipal
Bond Fund, Virginia Intermediate Municipal Bond Fund, Florida Municipal Bond
Fund, Georgia Municipal Bond Fund, Maryland Municipal Bond Fund, North Carolina
Municipal Bond Fund, South Carolina Municipal Bond Fund, Tennessee Municipal
Bond Fund, Texas Municipal Bond Fund and Virginia Municipal Bond Fund: In
addition to the types of securities described in their Prospectuses, the Funds
may invest in: certain specified derivative securities, including interest rate
swaps, caps and floors for hedging purposes; exchange-traded options;
over-the-counter options executed with primary dealers, including long term
calls and puts and covered calls; and U.S. and foreign exchange-traded financial
futures and options thereon approved by the CFTC for market exposure risk
management. Each of the Funds also may lend their portfolio securities to
qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Additionally, each
Fund may purchase securities issued by other investment companies, consistent
with the Funds' investment objectives and policies. The Funds also may invest in
instruments issued by trusts or certain partnerships including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
California Municipal Bond Fund: In addition to the types of securities
described in the Fund's Prospectus, the Fund may invest in: below
investment-grade municipal securities, short-term taxable and non-taxable
obligations, repurchase agreements, private activity bonds, certain specified
derivative securities, including: interest rate swaps, caps and floors for
hedging purposes; exchange-traded options; over-the-counter options executed
with primary dealers, including long calls and puts and covered calls to enhance
return; and CFTC-approved U.S. and foreign exchange-traded financial futures and
options thereon for market exposure risk-management. The Fund may lend its Fund
securities to qualified institutional investors and may invest in repurchase
agreements, restricted, private placement and other illiquid securities. The
Fund may engage in reverse repurchase agreements and dollar roll transactions.
Additionally, the Fund may purchase securities issued by other investment
companies, consistent
23
<PAGE>
with the Fund's investment objective and policies. The Fund also may invest in
instruments issued by trusts or certain partnerships including pass-through
certificates representing participations in, or debt investments backed by, the
securities and other assets owned by such trusts and partnerships.
Kansas Fund: In addition to the types of securities described in its
Prospectuses, the Fund may invest in: certain specified derivative securities,
including interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long term calls and puts and covered calls; and U.S. and foreign
exchange-traded financial futures and options thereon approved by the CFTC for
market exposure risk management. The Fund also may lend its portfolio securities
to qualified institutional investors and may invest in repurchase agreements,
restricted, private placement and other illiquid securities. Additionally, the
Fund may purchase securities issued by other investment companies, consistent
with the its investment objective, investment strategies and policies. The Fund
also may invest in instruments issued by trusts or certain partnerships
including pass-through certificates representing participations in, or debt
instruments backed by, the securities and other assets owned by such issuers.
Money Market Funds
Prime Fund: In addition to the types of securities described in the
Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements. The
Fund may also invest in securities issued by other investment companies that
invest in securities consistent with the Fund's investment objective and
policies.
Treasury Fund: In addition to the types of securities described in the
Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements. The
Fund may also invest in securities issued by other investment companies that
invest in securities consistent with the Fund's investment objective and
policies.
Tax-Exempt Fund: In addition to the types of securities described in
the Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors. The Fund may also invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies.
Government Money Market Fund: In addition to the types of securities
described in the Prospectus, the Fund may also invest in repurchase agreements
and securities issued by other investment companies that invest in securities
consistent with the Fund's investment objective and policies.
Government Reserves: In addition to the types of securities described
in the Prospectus, the Fund may also invest in repurchase agreements and
securities issued by other investment companies that invest in securities
consistent with the Fund's investment objective and policies.
California Tax-Exempt Reserves: In addition to the types of securities
described in the Prospectus, the Fund may also invest in cash equivalents and
taxable obligations, during temporary defensive periods.
Cash Reserves: In addition to the types of securities described in the
Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements.
Treasury Reserves: In addition to the types of securities described in
the Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors.
Municipal Reserves: In addition to the types of securities described in
the Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements.
Money Market Reserves: In addition to the types of securities described
in the Prospectus, the Fund may lend its portfolios securities to qualified
institutional investors and may invest in reverse repurchase agreements.
Additional information on the particular types of securities in which
certain Funds may invest in is set forth below.
Additional information on the particular types of securities in which
certain Funds may invest in is set forth below.
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Asset-Backed Securities
In General. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of
the prepayment of the underlying debt instruments. The rate of such prepayments
will be a function of current market interest rates, and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
Mortgage pass-through securities may represent participation interests
in pools of residential mortgage loans originated by U.S. Governmental or
private lenders and guaranteed, to the extent provided in such securities, by
the U.S. Government or one of its agencies, authorities or instrumentalities.
Such securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semi-annually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which a Fund may
invest may include those issued or guaranteed by Government National Mortgage
Association ("Ginnie Mae" or "GNMA"), Federal National Mortgage Association
("Fannie Mae" or "FNMA") or Federal Home Loan Mortgage Corporation ("Freddie
Mac" or "FHLMC"). Such Certificates are mortgage-backed securities which
represent a partial ownership interest in a pool of mortgage loans issued by
lenders such as mortgage bankers, commercial banks and savings and loan
associations. Such mortgage loans may have fixed or adjustable rates of
interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly, which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
Fund.
Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government.
Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities (collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class
pass-through securities are interests in a trust composed of Mortgage Assets and
all references herein to CMOs will include multi-class pass-through securities.
Payments of principal of and interest on the Mortgage Assets, and any
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reinvestment income thereon, provide the funds to pay debt service on the CMOs
or make scheduled distribution on the multi-class pass-through securities.
Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A Fund will only invest in SMBS that are obligations backed
by the full faith and credit of the U.S. Government. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. A Fund will only invest
in SMBS whose mortgage assets are U.S. Government obligations.
A common type of SMBS will be structured so that one class receives
some of the interest and most of the principal from the mortgage assets, while
the other class receives most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may fail to fully recoup its initial investment
in these securities. The market value of any class which consists primarily or
entirely of principal payments generally is unusually volatile in response to
changes in interest rates.
The average life of mortgage-backed securities varies with the
maturities of the underlying mortgage instruments. The average life is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments, mortgage
refinancings, or foreclosures. The rate of mortgage prepayments, and hence the
average life of the certificates, will be a function of the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. Such prepayments are passed through to
the registered holder with the regular monthly payments of principal and
interest and have the effect of reducing future payments. Estimated average life
will be determined by the Adviser and used for the purpose of determining the
average weighted maturity and duration of the Funds.
Additional Information on Mortgage-Backed Securities.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the FHLMC. FHLMC is a
corporate instrumentality of the U.S. Government and was created by Congress in
1970 for the purpose of increasing the availability of mortgage credit for
residential housing. Its stock is owned by the twelve Federal Home Loan Banks.
FHLMC issues Participation
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Certificates ("PC's"), which represent interests in mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
FNMA is a Government sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases residential mortgages from a list of
approved sellers/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
GNMA. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by approved institutions and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The Fund expects that Governmental or private entities may create
mortgage loan pools offering pass-through investments in addition to those
described above. The mortgages underlying these securities may be alternative
mortgage instruments, that is, mortgage instruments whose principal or interest
payment may vary or whose terms to maturity may be shorter than previously
customary. As new types of mortgage-backed securities are developed and offered
to investors, certain Funds will, consistent with their investment objective and
policies, consider making investments in such new types of securities.
Underlying Mortgages
--------------------
Pools consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of 1-4 family homes. The terms
and characteristics of the mortgage instruments are generally uniform within a
pool but may vary among pools. For example, in addition to fixed-rate,
fixed-term mortgages, a Fund may purchase pools of variable-rate mortgages
(VRM), growing equity mortgages (GEM), graduated payment mortgages (GPM) and
other types where the principal and interest payment procedures vary. VRM's are
mortgages which reset the mortgage's interest rate periodically with changes in
open market interest rates. To the extent that the Fund is actually invested in
VRM's, the Fund's interest income will vary with changes in the applicable
interest rate on pools of VRM's. GPM and GEM pools maintain constant interest
rates, with varying levels of principal repayment over the life of the mortgage.
These different interest and principal payment procedures should not impact the
Fund's net asset value since the prices at which these securities are valued
will reflect the payment procedures.
All poolers apply standards for qualification to local lending
institutions which originate mortgages for the pools. Poolers also establish
credit standards and underwriting criteria for individual mortgages included in
the pools. In addition, some mortgages included in pools are insured through
private mortgage insurance companies.
Average Life
------------
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage, and other social and demographic conditions.
As prepayment rates of individual pools vary widely, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed-rated 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying assumptions for
average life.
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Returns on Mortgage-Backed Securities
-------------------------------------
Yields on mortgage-backed pass-through securities are typically quoted
based on the maturity of the underlying instruments and the associated average
life assumption. Actual prepayment experience may cause the yield to differ from
the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yields of the Fund. The
compounding effect from reinvestments of monthly payments received by the Fund
will increase its yield to shareholders, compared to bonds that pay interest
semi-annually.
Non-Mortgage Asset-backed Securities. Non-mortgage asset-backed
securities include interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. Such securities
are generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Such securities also may include instruments issued by certain trusts,
partnerships or other special purpose issuers, including pass-through
certificates representing participations in, or debt instruments backed by, the
securities and other assets owned by such issuers.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and Federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
While the market for asset-backed securities is becoming increasingly
liquid, the market for mortgage-backed securities issued by certain private
organizations and non-mortgage-backed securities is not as well developed. As
stated above, the Adviser intends to limit its purchases of mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities to securities that are readily marketable at the time of purchase.
Borrowings
Certain Funds participate in a committed line of credit agreement (the
"Committed Line") with The Bank of New York as administrative agent and
Commerzbank, A.G. and Grand Cayman Branches as syndication agents. The Committed
Line affords an open line of credit of up to $500,000,000 to the participating
Funds for emergency purposes or otherwise. Interest on borrowings is generally
payable at the federal funds rate plus .50% on an annualized basis. The
borrowing Funds are also charged an administrative fee by The Bank of New York
generally at a rate of 0.09% of the daily amount of the commitment under the
Committed Line, regardless of usage. Unless renewed by the relevant Boards of
Directors/Trustees, the Committed Line will expire on November 18, 2000.
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Specific borrowings by a Fund under the Committed Line over the last fiscal
year, if any, can by found in the Funds' Annual Reports for the year ended March
31, 2000.
The Funds also participate in an uncommitted line of credit provided by
The Bank of New York under a line of credit agreement (the "Uncomitted Line").
Advances under the Uncommitted Line are taken primarily for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Interest on borrowings is
payable at the federal funds rate plus .50% on an annualized basis. The
Agreement requires, among other things, that each participating Fund maintain a
ratio of no less than 4 to 1 net assets (not including funds borrowed pursuant
to the Agreement) to the aggregate amount of indebtedness pursuant to the
Agreement. Specific borrowings by a Fund under the Uncommitted Line over the
last fiscal year, if any, can by found in the Funds' Annual Reports for the year
ended March 31, 2000.
Commercial Instruments
Certain Funds may purchase commercial instruments. Commercial
Instruments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or issued in the U.S. by foreign corporations and foreign
commercial banks. The Prime Fund will limit purchases of commercial instruments
to instruments which: (a) if rated by at least two NRSROs are rated in the
highest rating category for short-term debt obligations given by such
organizations, or if only rated by one such organization, are rated in the
highest rating category for short-term debt obligations given by such
organization; or (b) if not rated, are (i) comparable in priority and security
to a class of short-term instruments of the same issuer that has such rating(s),
or (ii) of comparable quality to such instruments as determined by NFI's Board
of Directors 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 objectives. In
addition, the Funds may acquire unrated commercial paper and corporate bonds
that are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by such Funds as previously
described.
Variable-rate master demand notes are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. While some of these notes are not rated by credit rating
agencies, issuers of variable rate master demand notes must satisfy the Adviser
that similar criteria to that set forth above with respect to the issuers of
commercial paper purchasable by the Prime Fund are met. Variable-rate
instruments acquired by a Fund will be rated at a level consistent with such
Fund's investment objective and policies of high quality as determined by a
major rating agency or, if not rated, will be of comparable quality as
determined by the Adviser. See also the discussion of variable- and
floating-rate instruments in this SAI.
Variable- and floating-rate instruments are unsecured instruments that
permit the indebtedness thereunder to vary. While there may be no active
secondary market with respect to a particular variable or floating rate
instrument purchased by a Fund, a Fund may, from time to time as specified in
the instrument, demand payment of the principal or may resell the instrument to
a third party. The absence of an active secondary market, however, could make it
difficult for a Fund to dispose of an instrument if the issuer defaulted on its
payment obligation or during periods when a Fund is not entitled to exercise its
demand rights, and a Fund could, for these or other reasons, suffer a loss. A
Fund may invest in variable and floating rate instruments only when the Adviser
deems the investment to involve minimal credit risk. If such instruments are not
rated, the Adviser will consider the earning power, cash flows, and other
liquidity ratios of the issuers of such instruments and will continuously
monitor their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will be deemed to have a maturity
equal to the shorter of the period remaining to the next interest rate
adjustment or the demand notice period specified in the instrument.
Certain Funds also may purchase short-term participation interests in
loans extended by banks to companies, provided that both such banks and such
companies meet the quality standards set forth above. In purchasing a loan
participation or assignment, the Fund acquires some or all of the interest of a
bank or other lending institution in a loan to a corporate borrower. Many such
loans are secured and most impose restrictive covenants which must be met by the
borrower and which are generally more stringent than the covenants available in
publicly traded debt securities. However, interests in some loans may not be
secured, and the Fund will be exposed to a risk of loss if the borrower
defaults. Loan participations also may be purchased by the Fund when the
borrowing company is already in default. In purchasing a loan participation, the
Fund may have less protection under the federal securities laws than it has in
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purchasing traditional types of securities. The Fund's ability to assert its
rights against the borrower will also depend on the particular terms of the loan
agreement among the parties.
Combined Transactions
Certain Funds may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple forward foreign
currency exchange contracts and any combination of futures, options and forward
foreign currency exchange contracts ("component" transactions), instead of a
single transaction, as part of a single hedging strategy when, in the opinion of
the Adviser, it is in the best interest of a Fund to do so and where underlying
hedging strategies are permitted by a Fund's investment policies. A combined
transaction, while part of a single hedging strategy, may contain elements of
risk that are present in each of its component transactions.
Convertible Securities
Certain Funds may invest in convertible securities, such as bonds,
notes, debentures, preferred stocks and other securities that may be converted
into common stock. Except for the Convertible Securities Fund and High Yield
Bond Fund, which may invest in convertible securities that are non-investment
grade (e.g., rated "B" or below by S&P), the convertible securities purchased by
a Fund will generally be rated in the top two categories by an NRSRO or, if
unrated, determined by the Adviser to be of comparable quality. Investments in
convertible securities can provide income through interest and dividend
payments, as well as, an opportunity for capital appreciation by virtue of their
conversion or exchange features.
The convertible securities in which a Fund may invest include
fixed-income and zero coupon debt securities, and preferred stock that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities, generally,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stock changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis, and so may not
experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the price
of a convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income or, in the case of zero coupon securities,
accretion of income with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion
exchange features. Convertible securities generally are subordinated to other
similar debt securities but not to non-convertible securities of the same
issuer. Convertible bonds, as corporate debt obligations, are senior in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-convertible
securities. Convertible securities may be issued as fixed income obligations
that pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon convertible securities offer the opportunity for capital appreciation
because increases (or decreases) in the market value of such securities closely
follow the movements in the market value of the underlying common stock. Zero
coupon convertible securities generally are expected to be less volatile than
the underlying common stocks because they usually are issued with short
maturities (15 years or less) and are issued with options and/or redemption
features exercisable by the holder of the obligation entitling the holder to
redeem the obligation and receive a defined cash payment.
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Corporate Debt Securities
Certain Funds may invest in corporate debt securities of domestic
issuers of all types and maturities, such as bonds, debentures, notes and
commercial paper. Corporate debt securities may involve equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, participation based on revenue, sales or profit, or
the purchase of common stock or warrants in a unit transaction (where corporate
debt obligations and common stock are offered as a unit). Each Fund may also
invest in corporate debt securities of foreign issuers.
The corporate debt securities in which the High Yield Master Portfolio
will invest will be rated BB or lower by Standard & Poor's Corporation ("S&P")
or Ba or below by Moody's Investors Services, Inc. ("Moody's"). The corporate
debt securities in which the Funds will invest will be rated investment grade by
at least one NRSRO (e.g., BBB or above by S&P or Baa or above by Moody's).
Commercial paper purchased by the Funds will be rated in the top two categories
by a NRSRO. Corporate debt securities that are not rated may be purchased by
such Funds if they are determined by the Adviser to be of comparable quality
under the direction of the Board of Directors/Trustees of the respective
Company. If the rating of any corporate debt security held by a Fund falls below
such ratings or if the Adviser determines that an unrated corporate debt
security is no longer of comparable quality, then such security shall be
disposed of in an orderly manner as quickly as possible. A description of these
ratings is attached as Schedule A to this Statement of Additional Information.
Custodial Receipts
Certain Funds may also acquire custodial receipts that evidence
ownership of future interest payments, principal payments or both on certain
U.S. Government notes or bonds. Such notes and bonds are held in custody by a
bank on behalf of the owners. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts" and
"Certificates of Accrual on Treasury Securities." Although custodial receipts
are not considered U.S. Government securities, they are indirectly issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities. Custodial receipts will be treated as illiquid
securities.
Currency Swaps
Certain Funds also may enter into currency swaps for hedging purposes
and to seek to increase total return. In as much as swaps are entered into for
good faith hedging purposes or are offset by a segregated account as described
below, the Fund and the Adviser believe that swaps do not constitute senior
securities as defined in the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. The net amount of the
excess, if any, of the Fund's obligations over its entitlement with respect to
each currency swap will be accrued on a daily basis and an amount of cash or
liquid high grade debt securities (i.e., securities rated in one of the top
three ratings categories by an NRSRO, or, if unrated, deemed by the Adviser to
be of comparable credit quality) having an aggregate net asset value at least
equal to such accrued excess will be maintained in a segregated account by the
Fund's custodian. The Fund will not enter into any currency swap unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
other party thereto is considered to be investment grade by the Adviser.
Delayed Delivery Transactions
In a delayed delivery transaction, the Fund relies on the other party
to complete the transaction. If the transaction is not completed, the Fund may
miss a price or yield considered to be advantageous. In delayed delivery
transactions, delivery of the securities occurs beyond normal settlement
periods, but a Fund would not pay for such securities or start earning interest
on them until they are delivered. However, when a Fund purchases securities on
such a delayed delivery basis, it immediately assumes the risk of ownership,
including the risk of price fluctuation. Failure by a counterparty to deliver a
security purchased on a delayed delivery basis may result in a loss or missed
opportunity to make an alternative investment. Depending upon market conditions,
a Fund's delayed delivery purchase commitments could cause its net asset value
to be more volatile, because such securities may increase the amount by which
the Fund's total assets, including the value of when-issued and delayed delivery
securities held by the Fund, exceed its net assets.
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Dollar Roll Transactions
Certain Funds may enter into "dollar roll" transactions, which consist
of the sale by a Fund to a bank or broker/dealer (the "counterparty") of GNMA
certificates or other mortgage-backed securities together with a commitment to
purchase from the counterparty similar, but not identical, securities at a
future date, at the same price. The counterparty receives all principal and
interest payments, including prepayments, made on the security while it is the
holder. A Fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a
period of several months with a different repurchase price and a cash settlement
made at each renewal without physical delivery of securities. Moreover, the
transaction may be preceded by a firm commitment agreement pursuant to which the
Fund agrees to buy a security on a future date. If the broker/dealer to whom a
Fund sells the security becomes insolvent, the Fund's right to purchase or
repurchase the security may be restricted; the value of the security may change
adversely over the term of the dollar roll; the security that the Fund is
required to repurchase may be worth less than the security that the Fund
originally held, and the return earned by the Fund with the proceeds of a dollar
roll may not exceed transaction costs.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions. For
example, if the counterparty becomes insolvent, the Fund's right to purchase
from the counterparty might be restricted. Additionally, the value of such
securities may change adversely before the Fund is able to purchase them.
Similarly, the Fund may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical security to the Fund, the security that the Fund is
required to buy under the dollar roll may be worth less than an identical
security. Finally, there can be no assurance that the Fund's use of the cash
that it receives from a dollar roll will provide a return that exceeds borrowing
costs.
Equity Swap Contracts
Certain Funds may from time to time enter into equity swap contracts.
The counterparty to an equity swap contract will typically be a bank, investment
banking firm or broker/dealer. For example, the counterparty will generally
agree to make periodic payments to the Fund of the amount, if any, by which the
notional amount of the Equity Swap Contract would have increased in value had it
been invested in the stocks comprising the S&P 500 Index in proportion to the
composition of the Index, plus the dividends that would have been received on
those stocks. A Fund will agree to pay to the counterparty a floating rate of
interest (typically the London Inter Bank Offered Rate) on the notional amount
of the Equity Swap Contract. Therefore, the return to a Fund on any Equity Swap
Contract should be the gain or loss on the notional investment, plus dividends,
in the stocks comprising the S&P 500 Index, less the floating rate of interest
paid by the Fund on the notional amount. A Fund will only enter into Equity Swap
Contracts that provide for payments to be made on a net basis, i.e., the two
parties' obligations are netted out, with the Fund paying or receiving, as the
case may be, only the net amount of any payments. Payments under the Equity Swap
Contracts may be made at the conclusion of the contract or periodically during
its term.
If there is a default by the counterparty to an Equity Swap Contract, a
Fund will be limited to contractual remedies pursuant to the agreements related
to the transaction. There is no assurance that Equity Swap Contract
counterparties will be able to meet their obligations pursuant to Equity Swap
Contracts or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. A Fund thus assumes the risk that it may be delayed in or
prevented from obtaining payments owed to it pursuant to Equity Swap Contracts.
A Fund will closely monitor the credit of Equity Swap Contract counterparties in
order to minimize this risk.
Certain Funds may from time to time enter into the opposite side of
Equity Swap Contracts (i.e., where a Fund is obligated to pay the increase (net
of interest) or receive the decrease (plus interest) on the contract to reduce
the amount of the Fund's equity market exposure consistent with the Fund's
objective. These positions are sometimes referred to as Reverse Equity Swap
Contracts.
Equity Swap Contracts will not be used to leverage a Fund. A Fund will
not enter into any Equity Swap Contract or Reverse Equity Swap Contract unless,
at the time of entering into such transaction, the unsecured senior debt of the
counterparty is rated at least A by Moody's or S&P. Since the SEC considers
Equity Swap Contracts and Reverse Equity Swap Contracts to be illiquid
securities, a Fund will not invest in Equity Swap Contracts or Reverse Equity
Swap Contracts if the total value of such investments together with that of all
other illiquid securities which a Fund owns would exceed any limitation imposed
by the SEC Staff.
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The Adviser does not believe that a Fund's obligations under Equity
Swap Contracts or Reverse Equity Swap Contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of a Fund's
obligations over its respective entitlements with respect to each Equity Swap
Contract and each Reverse Equity Swap Contract will be accrued on a daily basis
and an amount of cash, U.S. Government securities or other liquid high quality
debt securities having an aggregate market value at least equal to the accrued
excess will be maintained in a segregated account by the Fund's custodian.
Foreign Currency Forward Transactions
Certain Funds may invest in foreign currency transactions. Foreign
securities involve currency risks. The U.S. dollar value of a foreign security
tends to decrease when the value of the U.S. dollar rises against the foreign
currency in which the security is denominated, and tends to increase when the
value of the U.S. dollar falls against such currency. A Fund may purchase or
sell forward foreign currency exchange contracts ("forward contracts") to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. A Fund may also
purchase and sell foreign currency futures contracts and related options (see
"Purchase and Sale of Currency Futures Contracts and Related Options"). A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date that is individually negotiated and privately
traded by currency traders and their customers.
Forward foreign currency exchange contracts establish an exchange rate
at a future date. These contracts are transferable in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward foreign currency exchange contract generally has no
deposit requirement, and is traded at a net price without commission. A Fund
will direct its custodian to segregate high grade liquid assets in an amount at
least equal to its obligations under each forward foreign currency exchange
contract. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's portfolio securities
or in foreign exchange rates, or prevent loss if the prices of these securities
should decline. The Fund's custodian will segregate cash, U.S. Government
securities or other high-quality debt securities having a value equal to the
aggregate amount of the Fund's commitments under forward contracts entered into
with respect to position hedges and cross-hedges. If the value of the segregated
securities declines, additional cash or securities will be segregated on a daily
basis so that the value of the segregated securities will equal the amount of
the Fund's commitments with respect to such contracts. As an alternative to
segregating all or part of such securities, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher than the forward contract price or
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price.
A Fund may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security (a
"transaction hedge"). In addition, when the Adviser believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's securities denominated in
such foreign currency, or when the Adviser believes that the U.S. dollar may
suffer a substantial decline against the foreign currency, it may enter into a
forward purchase contract to buy that foreign currency for a fixed dollar amount
(a "position hedge").
A Fund may, however, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Adviser believes that
the U.S. dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. dollar value of the
currency in which the fund securities are denominated (a "cross-hedge").
Foreign currency hedging transactions are an attempt to protect a Fund
against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in foreign
currency exchange rates that would adversely affect a portfolio position or an
anticipated portfolio position. Although these transactions tend to minimize the
risk of loss due to a decline in the value of the hedged currency, at the same
time they tend to limit any potential gain that might be realized should the
value of the hedged currency increase. The precise matching of the forward
contract amount and the value of the securities involved will not generally be
possible because the future value of these securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and date it matures.
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The Funds are dollar-denominated mutual funds and therefore
consideration is given to hedging part or all of the portfolio back to U.S.
dollars from international currencies. All decisions to hedge are based upon an
analysis of the relative value of the U.S. dollar on an international purchasing
power parity basis (purchasing power parity is a method for determining the
relative purchasing power of different currencies by comparing the amount of
each currency required to purchase a typical bundle of goods and services to
domestic markets) and an estimation of short-term interest rate differentials
(which affect both the direction of currency movements and also the cost of
hedging).
SPECIAL CONSIDERATIONS REGARDING EUROPE and the EURO: On January 1,
1999, eleven of the fifteen member countries of the European Union (EU) fixed
their currencies irrevocably to the euro, the new unit of currency of the
European Economic and Monetary Union (EMU). At that time each member's currency
was converted at a fixed rate to the euro. Initially, use of the euro will be
confined mainly to the wholesale financial markets, while its widespread use in
the retail sector will follow the circulation of euro banknotes and coins on
January 1, 2002. At that time, the national banknotes and coins of participating
member countries will cease to be legal tender. In addition to adopting a single
currency, member countries will no longer control their own monetary policies.
Instead, the authority to direct monetary policy will be exercised by the new
European Central Bank. While economic and monetary convergence in the European
Union may offer new opportunities for those investing in the region, investors
should be aware that the success of the union is not wholly assured. Europe must
grapple with a number of challenges, any one of which could threaten the
survival of this monumental undertaking. Eleven disparate economies must adjust
to a unified monetary system, the absence of exchange rate flexibility, and the
loss of economic sovereignty. The Continent's economies are diverse, its
governments decentralized, and its cultures differ widely. Unemployment is
historically high and could pose political risk. One or more member countries
might exit the union, placing the currency and banking system in jeopardy.
For those Funds that invest in euro-denominated securities (including
currency contracts) there is the additional risk of being exposed to a new
currency that may not fully reflect the strengths and weaknesses of the
disparate economies that make up the Union. This has been the case in the first
six months of 1999, when the initial exchange rates of the euro versus many of
the world's major currencies steadily declined. In this environment, U.S. and
other foreign investors experienced erosion of their investment returns in the
region. In addition, many European countries rely heavily upon export dependent
businesses and any strength in the exchange rate between the euro and the dollar
can have either a positive or a negative effect upon corporate profits.
Futures, Options and Other Derivative Instruments
Futures Contracts in General. A financial futures contract entered into
by a Fund is an agreement between two parties for the future delivery of fixed
income securities or equity securities or for the payment or acceptance of a
cash settlement in the case of futures contracts on an index of fixed income or
equity securities. A "sale" of a futures contract means the contractual
obligation to deliver the securities at a specified price on a specified date,
or to make the cash settlement called for by the contract. Futures contracts
have been designed by exchanges which have been designated "contract markets" by
the CFTC and must be executed through a brokerage firm, known as a futures
commission merchant, which is a member of the relevant contract market. Futures
contracts trade on these markets, and the exchanges, through their clearing
organizations, guarantee that the contracts will be performed as between the
clearing members of the exchange. Financial futures contracts can be based on
such debt securities as long-term U.S. Treasury Bonds, Treasury Notes, GNMA
modified pass-through mortgage-backed securities, three-month U.S. Treasury
Bills, bank certificates of deposit, and on indices of municipal, corporate and
government bonds.
While futures contracts based on securities do provide for the delivery
and acceptance of securities, such deliveries and acceptances are seldom made.
Generally, a futures contract is terminated by entering into an offsetting
transaction. A Fund will incur brokerage fees when it purchases and sells
futures contracts. At the time such a purchase or sale is made, a Fund must
provide cash or money market securities as a deposit known as "initial margin."
The initial deposit required will vary, but may be as low as 2% or less of a
contract's face value. Thereafter, the futures contract is valued daily through
a process known as "marking to market," and a Fund that engages in futures
transactions may receive or be required to pay "variation margin" as the futures
contract becomes more or less valuable. At the time of delivery of securities
pursuant to a futures contract based on securities, adjustments are made to
recognize differences in value arising from the delivery of securities with a
different interest
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rate than the specific security that provides the standard for the contract. In
some (but not many) cases, securities called for by a futures contract may not
have been issued when the contract was written.
Futures contracts on indices of securities are settled through the
making and acceptance of cash settlements based on changes in value of the
underlying rate or index between the time the contract is entered into and the
time it is liquidated.
Futures Contracts on Fixed Income Securities and Related Indices. As
noted in their respective Prospectuses, certain Funds may enter into
transactions in futures contracts for the purpose of hedging a relevant portion
of their portfolios and for separate purpose of yield enhancement. A Fund may
enter into transactions in futures contracts that are based on U.S. Government
obligations, including any index of Government obligations that may be available
for trading. Such transactions will be entered into where movements in the value
of the securities or index underlying a futures contract can be expected to
correlate closely with movements in the value of securities held in a Fund. For
example, a Fund may sell futures contracts in anticipation of a general rise in
the level of interest rates, which would result in a decline in the value of its
fixed income securities. If the expected rise in interest rates occurs, the Fund
may realize gains on its futures position, which should offset all or part of
the decline in value of fixed income fund securities. A Fund could protect
against such decline by selling fixed income securities, but such a strategy
would involve higher transaction costs than the sale of futures contracts and,
if interest rates again declined, the Fund would be unable to take advantage of
the resulting market advance without purchases of additional securities.
The purpose of the purchase or sale of a futures contract on government
securities and indices of government securities, in the case of the
above-referenced Funds, which hold or intend to acquire long-term debt
securities, is to protect a Fund from fluctuations in interest rates without
actually buying or selling long-term debt securities. For example, if long-term
bonds are held by a Fund, and interest rates were expected to increase, the Fund
might enter into futures contracts for the sale of debt securities. Such a sale
would have much the same effect as selling an equivalent value of the long-term
bonds held by the Fund. If interest rates did increase, the value of the debt
securities in the Fund would decline, but the value of the futures contracts to
the Fund would increase at approximately the same rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. When
a Fund is not fully invested and a decline in interest rates is anticipated,
which would increase the cost of fixed income securities that the Fund intends
to acquire, it may purchase futures contracts. In the event that the projected
decline in interest rates occurs, the increased cost of the securities acquired
by the Fund should be offset, in whole or part, by gains on the futures
contracts by entering into offsetting transactions on the contract market on
which the initial purchase was effected. In a substantial majority of
transactions involving futures contracts on fixed income securities, a Fund will
purchase the securities upon termination of the long futures positions, but
under unusual market conditions, a long futures position may be terminated
without a corresponding purchase of securities.
Similarly, when it is expected that interest rates may decline, futures
contracts on fixed income securities and indices of government securities may be
purchased for the purpose of hedging against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of such futures
contracts should be similar to that of long-term bonds, a Fund could take
advantage of the anticipated rise in the value of long-term bonds without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund's cash reserves could then be used to
buy long-term bonds in the cash market. Similar results could be accomplished by
selling bonds with long maturities and investing in bonds with short maturities
when interest rates are expected to increase. However, since the futures market
is more liquid than the cash market, the use of these futures contracts as an
investment technique allows a Fund to act in anticipation of such an interest
rate decline without having to sell its portfolio securities. To the extent a
Fund enters into futures contracts for this purpose, the segregated assets
maintained by a Fund will consist of cash, cash equivalents or high quality debt
securities of the Fund in an amount equal to the difference between the
fluctuating market value of such futures contract and the aggregate value of the
initial deposit and variation margin payments made by the Fund with respect to
such futures contracts.
Stock Index Futures Contracts. Certain Funds may sell stock index
futures contracts in order to offset a decrease in market value of its
securities that might otherwise result from a market decline. A Fund may do so
either to hedge the value of its portfolio as a whole, or to protect against
declines in the value of securities to be sold.
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Conversely, a Fund may purchase stock index futures contracts in order to
protect against anticipated increases in the cost of securities to be acquired.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its portfolio, it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. As such securities
are acquired, a Fund's futures positions would be closed out. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of its portfolio will decline prior to the time of sale.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to purchase a
position in the underlying futures contract (i.e., a purchase of such futures
contract) in the case of an option to purchase (a "call" option), or to purchase
a "short" position in the underlying futures contract (i.e., a sale of such
futures contract) in the case of an option to sell (a "put" option), at a fixed
price (the "strike price") up to a stated expiration date. The holder pays a
non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs. Upon exercise of the option by the
holder, the exchange clearing corporation establishes a corresponding long
position in the case of a put option. In the event that an option is exercised,
the parties will be subject to all the risks associated with the trading of
futures contracts, such as payment of variation margin deposits. In addition,
the writer of an option on a futures contract, unlike the holder, is subject to
initial and variation margin requirements on the option position.
Options on Futures Contracts on Fixed Income Securities and Related
Indices. Certain Funds may purchase put options on futures contracts in which
such Funds are permitted to invest for the purpose of hedging a relevant portion
of their portfolios against an anticipated decline in the values of portfolio
securities resulting from increases in interest rates, and may purchase call
options on such futures contracts as a hedge against an interest rate decline
when they are not fully invested. A Fund would write options on these futures
contracts primarily for the purpose of terminating existing positions.
Options on Stock Index Futures Contracts, Options on Stock Indices and
Options on Equity Securities. Certain Funds may purchase put options on stock
index futures contracts, stock indices or equity securities for the purpose of
hedging the relevant portion of their portfolio securities against an
anticipated market-wide decline or against declines in the values of individual
portfolio securities, and they may purchase call options on such futures
contracts as a hedge against a market advance when they are not fully invested.
A Fund would write options on such futures contracts primarily for the purpose
of terminating existing positions. In general, options on stock indices will be
employed in lieu of options on stock index futures contracts only where they
present an opportunity to hedge at lower cost. With respect to options on equity
securities, a Fund may, under certain circumstances, purchase a combination of
call options on such securities and U.S. Treasury bills. The Adviser believes
that such a combination may more closely parallel movements in the value of the
security underlying the call option than would the option itself.
Further, while a Fund generally would not write options on individual
portfolio securities, it may do so under limited circumstances known as
"targeted sales" and "targeted buys," which involve the writing of call or put
options in an attempt to purchase or sell portfolio securities at specific
desired prices. A Fund would receive a fee, or a "premium," for the writing of
the option. For example, where the Fund seeks to sell portfolio securities at a
"targeted" price, it may write a call option at that price. In the event that
the market rises above the exercise price, it would receive its "targeted"
price, upon the exercise of the option, as well as the premium income. Also,
where it seeks to buy portfolio securities at a "targeted" price, it may write a
put option at that price for which it will receive the premium income. In the
event that the market declines below the exercise price, a Fund would pay its
"targeted" price upon the exercise of the option. In the event that the market
does not move in the direction or to the extent anticipated, however, the
targeted sale or buy might not be successful and a Fund could sustain a loss on
the transaction that may not be offset by the premium received. In addition, a
Fund may be required to forego the benefit of an intervening increase or decline
in value of the underlying security.
Options and Futures Strategies. The Adviser may seek to increase the
current return of certain Funds by writing covered call or put options. In
addition, through the writing and purchase of options and the purchase and sale
of U.S. and certain foreign stock index futures contracts, interest rate futures
contracts, foreign currency futures
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contracts and related options on such futures contracts, the Adviser may at
times seek to hedge against a decline in the value of securities included in the
Fund or an increase in the price of securities that it plans to purchase for the
Fund. Expenses and losses incurred as a result of such hedging strategies will
reduce the Fund's current return. A Fund's investment in foreign stock index
futures contracts and foreign interest rate futures contracts, and related
options on such futures contracts, are limited to only those contracts and
related options that have been approved by the CFTC for investment by U.S.
investors. Additionally, with respect to a Fund's investment in foreign options,
unless such options are specifically authorized for investment by order of the
CFTC or meet the definition of trade options as set forth in CFTC Rule 32.4, a
Fund will not make these investments.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices,
foreign government securities and foreign currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of options or futures. Therefore, no assurance
can be given that a Fund will be able to utilize these instruments effectively
for the purposes stated below. Furthermore, a Fund's ability to engage in
options and futures transactions may be limited by tax considerations. Although
a Fund will only engage in options and futures transactions for limited
purposes, these activities will involve certain risks which are described below
under "Risk Factors Associated with Futures and Options Transactions." A Fund
will not engage in options and futures transactions for leveraging purposes.
Writing Covered Options on Securities. Certain Funds may write covered
call options and covered put options on securities in which it is permitted to
invest from time to time as the Adviser determines is appropriate in seeking to
attain its objective. Call options written by a Fund give the holder the right
to buy the underlying securities from a Fund at a stated exercise price; put
options give the holder the right to sell the underlying security to the Fund at
a stated price.
A Fund may write only covered options, which means that, so long as the
Fund is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, a Fund will
maintain in a separate account cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities. A Fund may also write combinations of covered puts and calls on the
same underlying security.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, a Fund limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
value, resulting in a potential capital loss if the purchase price exceeds the
market value plus the amount of the premium received, unless the security
subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. A Fund will realize a
profit or loss from such transaction if the cost of such transaction is less or
more than the premium received from the writing of the option. In the case of a
put option, any loss so incurred may be partially or entirely offset by the
premium received from a simultaneous or subsequent sale of a different put
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by unrealized appreciation of the underlying security owned by a
Fund.
Purchasing Put and Call Options on Securities. A Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. Such hedge protection is provided during the life of
the put option since a Fund, as holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in the
underlying security's market price. In order for a put option to be profitable,
the market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, a Fund will reduce any profit it might otherwise have realized
in its underlying security by the premium paid for the put option and by
transaction costs.
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A Fund may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the Fund, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, a Fund will reduce any
profit it might have realized had it bought the underlying security at the time
it purchased the call option by the premium paid for the call option and by
transaction costs.
Purchase and Sale of Options and Futures on Non-U.S. Stock Indices. A
Fund may purchase and sell options on non-U.S. stock indices and stock index
futures as a hedge against movements in the equity markets.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. A stock index futures contract is an agreement in which one
party agrees to deliver to the other an amount of cash equal to a specific
amount multiplied by the difference between the value of a specific stock index
at the close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.
If the Adviser expects general stock market prices to rise, a Fund
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased may also increase, but
that increase would be offset in part by the increase in the value of a Fund's
index option or futures contract resulting from the increase in the index. If,
on the other hand, the Adviser expects general stock market prices to decline, a
Fund might purchase a put option or sell a futures contract on the index. If
that index does in fact decline, the value of some or all of the equity
securities in a Fund may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the Fund's position in such put
option or futures contract.
Purchase and Sale of Interest Rate Futures. A Fund may purchase and
sell interest rate futures contracts on foreign government securities including,
but not limited to, debt securities of the governments and central banks of
France, Germany, Denmark and Japan for the purpose of hedging fixed income and
interest sensitive securities against the adverse effects of anticipated
movements in interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by a Fund will fall,
thus reducing the net asset value of the Fund. This interest rate risk can be
reduced without employing futures as a hedge by selling long-term fixed income
securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to a Fund in the form of dealer spreads and
brokerage commissions.
The sale of interest rate futures contracts provides an alternative
means of hedging against rising interest rates. As rates increase, the value of
a Fund's short position in the futures contracts will also tend to increase,
thus offsetting all or a portion of the depreciation in the market value of a
Fund's investments that are being hedged. While a Fund will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.
Options on Stock Index Futures Contracts and Interest Rate Futures
Contracts. A Fund may purchase and write call and put options on non-U.S. stock
index and interest rate futures contracts. A Fund may use such options on
futures contracts in connection with its hedging strategies in lieu of
purchasing and writing options directly on the underlying securities or stock
indices or purchasing and selling the underlying futures. For example, a Fund
may purchase put options or write call options on stock index futures, or
interest rate futures, rather than selling futures
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contracts, in anticipation of a decline in general stock market prices or rise
in interest rates, respectively, or purchase call options or write put options
on stock index or interest rate futures, rather than purchasing such futures, to
hedge against possible increases in the price of equity securities or debt
securities, respectively, which the Fund intends to purchase.
Purchase and Sale of Currency Futures Contracts and Related Options. In
order to hedge its portfolio and to protect it against possible variations in
foreign exchange rates pending the settlement of securities transactions, a Fund
may buy or sell currency futures contracts and related options. If a fall in
exchange rates for a particular currency is anticipated, a Fund may sell a
currency futures contract or a call option thereon or purchase a put option on
such futures contract as a hedge. If it is anticipated that exchange rates will
rise, a Fund may purchase a currency futures contract or a call option thereon
or sell (write) a put option to protect against an increase in the price of
securities denominated in a particular currency a Fund intends to purchase.
These futures contracts and related options thereon will be used only as a hedge
against anticipated currency rate changes, and all options on currency futures
written by a Fund will be covered.
A currency futures contract sale creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a special price. A currency futures contract purchase
creates an obligation by a Fund, as purchaser, to take delivery of an amount of
currency at a specified future time at a specified price. Although the terms of
currency futures contracts specify actual delivery or receipt, in most instances
the contracts are closed out before the settlement date without the making or
taking of delivery of the currency. Closing out of a currency futures contract
is effected by entering into an offsetting purchase or sale transaction. Unlike
a currency futures contract, which requires the parties to buy and sell currency
on a set date, an option on a currency futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is fixed at the point of sale.
The Fund will write (sell) only covered put and call options on
currency futures. This means that a Fund will provide for its obligations upon
exercise of the option by segregating sufficient cash or short-term obligations
or by holding an offsetting position in the option or underlying currency
future, or a combination of the foregoing. A Fund will, so long as it is
obligated as the writer of a call option on currency futures, own on a
contract-for-contract basis an equal long position in currency futures with the
same delivery date or a call option on stock index futures with the difference,
if any, between the market value of the call written and the market value of the
call or long currency futures purchased maintained by a Fund in cash, Treasury
bills, or other high grade short-term obligations in a segregated account with
its custodian. If at the close of business on any day the market value of the
call purchased by a Fund falls below 100% of the market value of the call
written by the Fund, a Fund will so segregate an amount of cash, Treasury bills
or other high grade short-term obligations equal in value to the difference.
Alternatively, a Fund may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option times the number of options written
by a Fund. In the case of put options on currency futures written by the Fund,
the Fund will hold the aggregate exercise price in cash, Treasury bills, or
other high grade short-term obligations in a segregated account with its
custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by a
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures by a Fund
falls below 100% of the market value of the put options written by the Fund, a
Fund will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.
If other methods of providing appropriate cover are developed, a Fund
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements. In connection with transactions in stock
index options, stock index futures, interest rate futures, foreign currency
futures and related options on such futures, a Fund will be required to deposit
as "initial margin" an amount of cash or short-term government securities equal
to from 5% to 8% of the contract amount. Thereafter, subsequent payments
(referred to as "variation margin") are made to and from the broker to reflect
changes in the value of the futures contract.
Limitations on Purchase of OTC Options. The staff of the SEC has taken
the position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities, cannot exceed 15% of a Fund's assets. The Adviser
intends to limit a Fund's writing of over-the-counter options in accordance with
the following procedure. Each Fund intends to write over-the-counter options
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only with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts which a Fund has in place with
such primary dealers will provide that the Fund has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Fund for writing the option, plus the
amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula also may include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. A Fund will treat all or a
part of the formula price as illiquid for purposes of any limitation on illiquid
securities imposed by the SEC staff.
Risk Factors Associated with Futures and Options Transactions
-------------------------------------------------------------
The effective use of options and futures strategies depends on, among
other things, a Fund's ability to terminate options and futures positions at
times when its the Adviser deems it desirable to do so. Although a Fund will not
enter into an option or futures position unless the Adviser believes that a
liquid secondary market exists for such option or future, there is no assurance
that a Fund will be able to effect closing transactions at any particular time
or at an acceptable price. A Fund generally expects that its options and futures
transactions will be conducted on recognized U.S. and foreign securities and
commodity exchanges. In certain instances, however, a Fund may purchase and sell
options in the over-the-counter market. A Fund's ability to terminate option
positions established in the over-the-counter market may be more limited than in
the case of exchange-traded options and may also involve the risk that
securities dealers participating in such transactions would fail to meet their
obligations to the Fund.
Options and futures markets can be highly volatile and transactions of
this type carry a high risk of loss. Moreover, a relatively small adverse market
movement with respect to these types of transactions may result not only in loss
of the original investment but also in unquantifiable further loss exceeding any
margin deposited.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of the subject of the hedge. Such correlation, particularly with respect
to options on stock indices and stock index futures, is imperfect, and such risk
increases as the composition of a Fund diverges from the composition of the
relevant index. The successful use of these strategies also depends on the
ability of the Adviser to correctly forecast interest rate movements, currency
rate movements and general stock market price movements.
In addition to certain risk factors described above, the following sets
forth certain information regarding the potential risks associated with the
Funds' futures and options transactions.
Risk of Imperfect Correlation. A Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in futures, options on
futures or options on stock indices depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the relevant portion of the Fund's
securities. If the values of the securities being hedged do not move in the same
amount or direction as the underlying security or index, the hedging strategy
for a Fund might not be successful and the Fund could sustain losses on its
hedging transactions which would not be offset by gains on its portfolio. It is
also possible that there may be a negative correlation between the security or
index underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
fund securities. In such instances, a Fund's overall return could be less than
if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. A Fund would, however, effect
transactions in such futures or options only for hedging purposes.
The trading of futures and options on indices involves the additional
risk of imperfect correlation between movements in the futures or option price
and the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures and options market. The purchase of
an option on a futures contract also involves the risk that changes in the value
of underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
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diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Fund will not be
able to establish hedging positions, or that any hedging strategy adopted will
be insufficient to completely protect the Fund.
A Fund will purchase or sell futures contracts or options only if, in
the Adviser's judgment, there is expected to be a sufficient degree of
correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
Potential Lack of a Liquid Secondary Market. The ordinary spreads
between prices in the cash and futures markets, due to differences in the
natures of those markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation margin
requirements. This could require a Fund to post additional cash or cash
equivalents as the value of the position fluctuates. Further, rather than
meeting additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures or options market may be lacking. Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by a Fund, which could require
the Fund to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures or option positions also could have an adverse
impact on a Fund's ability effectively to hedge its securities, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option
on a futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation in
the price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements. Investments in futures
contracts on fixed income securities and related indices involve the risk that
if the Adviser's investment judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits. Each contract market on which futures and
option contracts are traded has established a number of limitations governing
the maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Adviser does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding the Funds' investments.
Regulations on the Use of Futures and Options Contracts. Regulations of
the CFTC require that the Funds enter into transactions in futures contracts and
options thereon for hedging purposes only, in order to assure that they are not
deemed to be a "commodity pool" under such regulations. In particular, CFTC
regulations require that all short futures positions be entered into for the
purpose of hedging the value of investment securities held by a Fund, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, a Fund may not
purchase or sell such instruments if, immediately thereafter, the sum of the
amount of initial margin deposits on its existing futures
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positions and premiums paid for options on futures contracts would exceed 5% of
the market value of the Fund's total assets.
When a Fund purchases a futures contract, an amount of cash or cash
equivalents or high quality debt securities will be segregated with the Fund's
custodian so that the amount so segregated, plus the initial deposit and
variation margin held in the account of its broker, will at all times equal the
value of the futures contract, thereby insuring that the use of such futures is
unleveraged.
The Funds' ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months. The Funds may also further
limit their ability to engage in such transactions in response to the policies
and concerns of various Federal and state regulatory agencies. Such policies may
be changed by vote of the Board of Directors/Trustees.
Additional Information on Futures and Options
---------------------------------------------
As stated in the Prospectus, each Non-Money Market Fund, may enter into
futures contracts and options for hedging purposes. Such transactions are
described in this Schedule. During the current fiscal year, each of these Funds
intends to limit its transactions in futures contracts and options so that not
more than 5% of the Fund's net assets are at risk. Furthermore, in no event
would any Fund purchase or sell futures contracts, or related options thereon,
for hedging purposes if, immediately thereafter, the aggregate initial margin
that is required to be posted by the Fund under the rules of the exchange on
which the futures contract (or futures option) is traded, plus any premiums paid
by the Fund on its open futures options positions, exceeds 5% of the Fund's
total assets, after taking into account any unrealized profits and unrealized
losses on the Fund's open contracts and excluding the amount that a futures
option is "in-the-money" at the time of purchase. (An option to buy a futures
contract is "in-the-money" if the value of the contract that is subject to the
option exceeds the exercise price; an option to sell a futures contract is
"in-the-money" if the exercise Price exceeds the value of the contract that is
subject of the option.)
I. Interest Rate Futures Contracts.
-------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures market have tended to move generally in the aggregate
in concert with the cash market prices and have maintained fairly predictable
relationships. Accordingly, a Fund may use interest rate futures as a defense,
or hedge, against anticipated interest rate changes and not for speculation. As
described below, this would include the use of futures contract sales to protect
against expected increases in interest rates and futures contract purchases to
offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which it
hopes to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because of
the liquidity that is often available in the futures market the protection is
more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Fund, through using futures contracts.
Description of Interest Rates Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase would
create an obligation by the Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the
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sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. A Fund would deal
only in standardized contracts on recognized changes. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; GNMA modified pass-through mortgage-backed securities; three-month United
States Treasury Bills; and ninety-day commercial paper. The Funds may trade in
any futures contract for which there exists a public market, including, without
limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term securities
prices. Assume that the market value of a certain security in a Fund tends to
move in concert with the futures market prices of long-term United States
Treasury bonds ("Treasury Bonds"). The Adviser wishes to fix the current market
value of this portfolio security until some point in the future. Assume the
portfolio security has a market value of 100, and the Adviser believes that,
because of an anticipated rise in interest rates, the value will decline to 95.
The Fund might enter into futures contract sales of Treasury bonds for an
equivalent of 98. If the market value of the portfolio securities does indeed
decline from 100 to 95, the equivalent futures market price for the Treasury
bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by the
loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Future Contract Purchase. A Fund would engage in an
interest rate futures contract purchase when it is not fully invested in
long-term bonds but wishes to defer for a time the purchase of long-term bonds
in light of the availability of advantageous interim investments, e.g.,
shorter-term securities whose yields are greater than those available on
long-term bonds. The Fund's basic motivation would be to maintain for a time the
income advantage from investing in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the Fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with futures
market prices of Treasury bonds. The Adviser wishes to fix the current market
price (and thus 10% yield) of the long-term bond until the time (four months
away in this example) when it may purchase the bond. Assume the long-term bond
has a market price of 100, and the Adviser believes that, because of an
anticipated fall in interest rates, the price will have risen to 105 (and the
yield will have dropped to about 9-1/2%) in four months. The Fund might enter
into futures contracts purchases of Treasury bonds for an equivalent price of
98. At the same time, the Fund would assign a pool of investments in short-term
securities that are either maturing in four months or earmarked for sale in four
months, for purchase of the long-term bond at an assumed market price of 100.
Assume these short-term securities are yielding 15%. If the market price of the
long-term bond does indeed rise from 100 to 105, the equivalent futures market
price for Treasury bonds might also rise
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from 98 to 103. In that case, the 5-point increase in the price that the Fund
pays for the long-term bond would be offset by the 5-point gain realized by
closing out the futures contract Purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or below,
it is possible that the Fund would continue with its purchase program for
long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will be
reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates,
it is possible that the Fund would discontinue its purchase program for
long-term bonds. The yield on short-term securities in the portfolio, including
those originally in the pool assigned to the particular long-term bond, would
remain higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses also would be incurred.
II. Index Futures Contracts.
------------------------
A stock or bond index assigns relative values to the stocks or bonds
included in the index, and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indices, such as the Standard & Poor's 500 or the New York
Stock Exchange Composite Index. In contract, certain exchanges offer futures
contracts on narrower market indices, such as the Standard & Poor's 100, the
Bond Buyer Municipal Bond Index, an index composed of 40 term revenue and
general obligation bonds, or indices based on an industry or market segment,
such as oil and gas stocks. Futures contracts are traded on organized exchanges
regulated by the Commodity Futures Trading Commission. Transactions on such
exchanges are cleared through a clearing corporation, which guarantees the
performance of the parties to each contract.
A Fund will sell index futures contracts in order to offset a decrease
in market value of its portfolio securities that might otherwise result from a
market decline. The Fund may do so either to hedge the value of its portfolio as
a whole, or to protect against declines, occurring prior to sales of securities,
in the value of the securities to be sold. Conversely, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund also may
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net
of commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Gain on Futures = $2,500
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Price = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future Hedge
Objective: Protect Against Declining (Value of the Portfolio)
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Gain on Futures = $40,000
Value = $40 000
If, however, the market moved in the opposite direction, that is, market
value decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
ANTICIPATORY PURCHASE HEDGE: Buy the Future
Hedge Objective: Protect Against Increasing Price
Portfolio Futures
-Day Hedge is Placed
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost = $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Loss on Futures = $2,500/Contract
Price = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
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Equity Portfolio-Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio = $40,000 Loss of Futures = $40,000
Value = $40 000
III. Margin Payments
---------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Initially,
the Fund will be required to deposit with the broker or in a segregated account
with the Fund's Custodian an amount of cash or cash equivalents, the value, of
which may vary but is generally equal to 10% or less of the value of the
contract. This amount is known as initial margin. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as the
price of the underlying security or index fluctuates making the long and short
positions in the futures contract more or less valuable, a process known as
marking to the market. For example, when a Fund has purchased a futures contract
and the price of the contract has risen in response to a rise in the underlying
instruments, that position will have increased in value and the Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable, the Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Adviser may elect to close the position
by taking an opposite position, subject to the availability of a secondary
market, which will operate to terminate the Fund's position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund, and the Fund realizes a
loss or gain.
IV. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by a Fund
as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of securities
being hedged has moved in an unfavorable direction, the Fund would be in a
better position than if it had not hedged at Al. If the price of the securities
being hedged has moved in a favorable direction, this advance will be partially
offset by the loss on the future. If the price of the future moves more than the
price of the hedged securities, the Fund involved will experience either a loss
or gain on the future which will not be completely offset by movements in the
price of the securities which are the subject of the hedge.
To compensate for the imperfect correlation of movements in the price
of securities being hedged and movements in the price of futures contracts, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the volatility over a particular
time period of the prices of such securities has been greater than the
volatility over such time period of the future, or if otherwise deemed to be
appropriate by the Adviser. Conversely, a Fund may buy or sell fewer futures
contracts if the volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such time period of the
futures contract being used, or if otherwise deemed to be appropriate by the
Adviser. It also is possible that, where a Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance, and the value
of securities held by the Fund may decline. If this occurred, the Fund would
lose money on the future and also experience a decline in value in its portfolio
securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
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In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's Custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of Price distortion in the
futures market, and because of the imperfect correlation between the movements
in the cash market and movements in the price of futures, a correct forecast of
general market trends or interest rate movements by the Adviser still may not
result in a successful hedging transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, a Fund would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund also is subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if a Fund has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.
V. Options on Futures Contracts.
----------------------------
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
of an option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected
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in the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). Although permitted by their fundamental investment policies, the Funds
do not currently intend to write future options, and will not do so in the
future absent any necessary regulatory approvals.
Accounting Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Guaranteed Investment Contracts
Guaranteed investment contracts, investment contracts or funding
agreements (each referred to as a "GIC") are investment instruments issued by
highly rated insurance companies. Pursuant to such contracts, a Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to a Fund guaranteed
interest. The insurance company may assess periodic charges against a GIC for
expense and service costs allocable to it, and the charges will be deducted from
the value of the deposit fund. The purchase price paid for a GIC generally
becomes part of the general assets of the issuer, and the contract is paid from
the general assets of the issuer.
A Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Adviser.
Generally, GICs are not assignable or transferable without the permission of the
issuing insurance companies, and an active secondary market in GICs does not
currently exist. Also, a Fund may not receive the principal amount of a GIC from
the insurance company on seven days' notice or less, at which point the GIC may
be considered to be an illiquid investment.
A Money Market Fund will acquire GlCs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GlCs to those having a term
of 397 days or less. In determining average weighted portfolio maturity, a GIC
will be deemed to have a maturity equal to the period of time remaining under
the next readjustment of the guaranteed interest rate.
Illiquid and Restricted Securities
Certain Funds may invest in restricted and illiquid securities.
Illiquid securities are securities that may not be sold or disposed of in the
ordinary course of business within seven business days at approximately the
value at which they are being carried on the Fund's books. The Funds may invest
in restricted, privately placed securities that may be sold only 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. In the case of Rule 144A
restricted securities, because these securities can be resold only to qualified
institutional buyers or after they have been held for a number of years, they
may be considered illiquid securities--meaning that they could be difficult for
a Fund to convert to cash if needed. If a substantial market develops for a
restricted security held by a Fund, it will be treated as a liquid security, in
accordance with procedures and guidelines approved by such Fund's Board. While
the Adviser determines the liquidity of restricted securities on a daily basis,
the Board oversees and retains ultimate responsibility for the Adviser's
decisions. Several factors that the Board considers in monitoring these
decisions include the valuation of a security, the availability of qualified
institutional buyers, and the availability of information about the security's
issuer.
Insured Municipal Securities
Certain of the Municipal Securities held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Securities at the time of its original issuance. In the event that the issuer
defaults with respect to interest or principal payments, the insurer will be
notified and will be required to make payment to the bondholders. There is,
however, no guarantee that the insurer will meet its obligations. In addition,
such insurance will not protect against market fluctuations caused by changes in
interest rates and other factors.
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Interest Rate Transactions
Among the strategic transactions into which certain Funds may enter are
interest rate swaps and the purchase or sale of related caps and floors. The
Funds expect to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. A Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by a Fund
with another party of their respective commitments to pay or receive interest,
e.g. an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies based on the relative
value differential among them and an index swap is an agreement to swap cash
flows on a notional amount based on changes in the values of the reference
indices. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. In as much as these swaps, caps and
floors are entered into for good faith hedging purposes, the Adviser and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. A Fund will not enter into any swap, cap and floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by Standard & Poor's Corporation or Moody's Investors Service, Inc. or
has an equivalent rating from an NRSRO or is determined to be of equivalent
credit quality by the Adviser. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
With respect to swaps, a Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps and floors require segregation
of assets with a value equal to the Fund's net obligation, if any.
Lower Rated Debt Securities
The yields on lower rated debt and comparable unrated fixed-income
securities generally are higher than the yields available on higher-rated
securities. However, investments in lower rated debt and comparable unrated
securities generally involve greater volatility of price and risk of loss of
income and principal, including the probability of default by or bankruptcy of
the issuers of such securities. Lower rated debt and comparable unrated
securities (a) will likely have some quality and protective characteristics
that, in the judgment of the rating organization, are outweighed by large
uncertainties or major risk exposures to adverse conditions and (b) are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. Accordingly,
it is possible that these types of factors could, in certain instances, reduce
the value of securities held in a Fund's portfolio, with a commensurate effect
on the value of the Fund's shares. Therefore, an investment in the Fund should
not be considered as a complete investment program and may not be appropriate
for all investors.
The market prices of lower rated securities may fluctuate more than
higher rated securities and may decline significantly in periods of general
economic difficulty which may follow periods of rising interest rates. During an
economic downturn or a prolonged period of rising interest rates, the ability of
issuers of lower quality debt to service their payment obligations, meet
projected goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower rated securities, the
Adviser will try to minimize the risks inherent in investing in lower rated debt
securities by engaging in credit analysis, diversification, and attention to
current developments and trends affecting interest rates and economic
conditions. The Adviser will attempt to
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identify those issuers of high-yielding securities whose financial condition is
adequate to meet future obligations, have improved, or are expected to improve
in the future.
Unrated securities are not necessarily of lower quality than rated
securities, but they may not be attractive to as many buyers. Each Fund's
policies regarding lower rated debt securities are not fundamental and may be
changed at any time without shareholder approval.
While the market values of lower rated debt and comparable unrated
securities tend to react less to fluctuations in interest rate levels than the
market values of higher-rated securities, the market values of certain lower
rated debt and comparable unrated securities also tend to be more sensitive to
individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, lower rated debt securities and comparable
unrated securities generally present a higher degree of credit risk. Issuers of
lower rated debt and comparable unrated securities often are highly leveraged
and may not have more traditional methods of financing available to them so that
their ability to service their debt obligations during an economic downturn or
during sustained periods of rising interest rates may be impaired. The risk of
loss due to default by such issuers is significantly greater because lower rated
debt and comparable unrated securities generally are unsecured and frequently
are subordinated to the prior payment of senior indebtedness. A Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio holdings. The
existence of limited markets for lower rated debt and comparable unrated
securities may diminish a Fund's ability to (a) obtain accurate market
quotations for purposes of valuing such securities and calculating its net asset
value and (b) sell the securities at fair value either to meet redemption
requests or to respond to changes in the economy or in financial markets.
Fixed-income securities, including lower rated debt securities and
comparable unrated securities, frequently have call or buy-back features that
permit their issuers to call or repurchase the securities from their holders,
such as a Fund. If an issuer exercises these rights during periods of declining
interest rates, a Fund may have to replace the security with a lower yielding
security, thus resulting in a decreased return to a Fund.
The market for certain lower rated debt and comparable unrated
securities is relatively new and has not weathered a major economic recession.
The effect that such a recession might have on such securities is not known. Any
such recession, however, could disrupt severely the market for such securities
and adversely affect the value of such securities. Any such economic downturn
also could adversely affect the ability of the issuers of such securities to
repay principal and pay interest thereon.
Municipal Securities
Generally. The two principal classifications of municipal securities
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit, and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Private
activity bonds held by a Fund are in most cases revenue securities and are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal securities may include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Municipal securities may include variable- or floating- rate
instruments issued by industrial development authorities and other governmental
entities. While there may not be an active secondary market with respect to a
particular instrument purchased by a Fund, a Fund may demand payment of the
principal and accrued interest on the instrument or may resell it to a third
party as specified in the instruments. The absence of an active secondary
market, however, could make it difficult for a Fund to dispose of the instrument
if the issuer defaulted on its payment obligation or during periods the Fund is
not entitled to exercise its demand rights, and the Fund could, for these or
other reasons, suffer a loss.
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Some of these instruments may be unrated, but unrated instruments
purchased by a Fund will be determined by the Adviser to be of comparable
quality at the time of purchase to instruments rated "high quality" by any major
rating service. Where necessary to ensure that an instrument is of comparable
"high quality," a Fund will require that an issuer's obligation to pay the
principal of the note may be backed by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Municipal securities may include participations in privately arranged
loans to state or local government borrowers, some of which may be referred to
as "municipal leases." Generally such loans are unrated, in which case they will
be determined by the Adviser to be of comparable quality at the time of purchase
to rated instruments that may be acquired by a Fund. Frequently, privately
arranged loans have variable interest rates and may be backed by a bank letter
of credit. In other cases, they may be unsecured or may be secured by assets not
easily liquidated. Moreover, such loans in most cases are not backed by the
taxing authority of the issuers and may have limited marketability or may be
marketable only by virtue of a provision requiring repayment following demand by
the lender. Such loans made by a Fund may have a demand provision permitting the
Fund to require payment within seven days. Participations in such loans,
however, may not have such a demand provision and may not be otherwise
marketable.
Although lease obligations do not constitute general obligations of the
municipal issuer to which the government's taxing power is pledged, a lease
obligation is ordinarily backed by the government's covenant to budget for,
appropriate, and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the government has no obligation to make lease or installment purchase payments
in future years unless money is appropriated for such purpose on a yearly basis.
In addition to the "non-appropriation" risk, these securities represent a
relatively new type of financing that has not yet developed the depth of
marketability associated with more conventional bonds. In the case of a
"non-appropriation" lease, the Funds' ability to recover under the lease in the
event of non-appropriation or default will be limited solely to the repossession
of the leased property in the event foreclosure might prove difficult.
The Funds will not invest more than 5% of their total investment assets
in lease obligations that contain "non-appropriation" clauses where (1) the
nature of the leased equipment or property is such that its ownership or use is
essential to a governmental function of the governmental borrower, (2) the lease
payments will commence amortization of principal at an early date resulting in
an average life of seven years or less for the lease obligation, (3)
appropriates covenants will be obtained from the obligor prohibiting the
substitution or purchase of similar equipment if lease payments are not
appropriated, (4) the lease obligor has maintained good market acceptability in
the past, (5) the investment is of a size that will be attractive to
institutional investors, and (6) the underlying leased equipment has elements of
probability and/or use that enhance its marketability in the event foreclosure
on the underlying equipment were ever required. The Funds have not imposed any
percentage limitations with respect to their investment in lease obligations not
subject to the "non-appropriation" risk. To the extent municipal leases are
illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. Recovery of an investment in any such loan that is illiquid
and payable on demand may depend on the ability of the municipal borrower to
meet an obligation for full repayment of principal and payment of accrued
interest within the demand period, normally seven days or less (unless a Fund
determines that a particular loan issue, unlike most such loans, has a readily
available market). As it deems appropriate, the Adviser will establish
procedures to monitor the credit standing of each such borrower, including its
ability to meet contractual payment obligations.
In evaluating the credit quality of a municipal lease obligation and
determining whether such lease obligation will be considered "liquid," the
Adviser for each Fund will consider: (1) whether the lease can be canceled; (2)
what assurance there is that the assets represented by the lease can be sold;
(3) the strength of the lessee's general credit (e.g., its debt, administrative,
economic, and financial characteristics); (4) the likelihood that the
obligor/government borrower will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation"); and (5)
the legal recourse in the event of failure to appropriate.
Municipal securities may include units of participation in trusts
holding pools of tax-exempt leases. Municipal participation interests may be
purchased from financial institutions, and give the purchaser an undivided
interest in one or more underlying municipal security. To the extent that
municipal participation interests are considered to be "illiquid securities,"
such instruments are subject to each Fund's limitation on the purchase of
illiquid securities. Municipal leases and participating interests therein, which
may take the form of a lease or an
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installment sales contract, are issued by state and local governments and
authorities to acquire a wide variety of equipment and facilities. Interest
payments on qualifying leases are exempt from Federal income taxes.
In addition, certain of the Funds may acquire "stand-by commitments"
from banks or broker/dealers with respect to municipal securities held in their
portfolios. Under a stand-by commitment, a dealer would agree to purchase at a
Fund's option specified Municipal Securities at a specified price. The Funds
will acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis,
each may invest more than 25% of its total assets in municipal securities the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent that
more than 25% of a Fund's total assets are invested in Municipal Securities that
are payable from the revenues of similar projects, a Fund will be subject to the
peculiar risks presented by such projects to a greater extent than it would be
if its assets were not so concentrated.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation, and the rating of the
issue. The ratings of NRSROs represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that these ratings are
general and are not absolute standards of quality, and Municipal Securities with
the same maturity, interest rate, and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a Fund, an issue
of Municipal Securities may cease to be rated, or its rating may be reduced
below the minimum rating required for purchase by that Fund. The Adviser will
consider such an event in determining whether a Fund should continue to hold the
obligation.
Opinions relating to the validity of Municipal Securities and to the
excludability of interest thereon from Federal income tax or state income tax
are rendered by counsel to the issuer or bond counsel at the time of issuance.
Neither the Funds nor the Adviser will review the proceedings relating to the
issuance of Municipal Securities or the bases for opinions relating to the
validity of such issuance.
The payment of principal and interest on most securities purchased by a
Fund will depend upon the ability of the issuers to meet their obligations. Each
state, each of their political subdivisions, municipalities, and public
authorities, as well as the District of Columbia, Puerto Rico, Guam, and the
Virgin Islands are a separate "issuer" as that term is used in the Prospectuses
and this SAI. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer." An issuer's obligations
under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Securities may be materially adversely affected by
litigation or other conditions.
Although the Municipal Income Fund and the State Municipal Bond Funds
invest primarily in Municipal Securities with long-term maturities, the
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond Funds
invest primarily in Municipal Securities with intermediate-term maturities, they
may also purchase short-term General Obligation Notes, Tax Anticipation Notes,
Bond Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial
Paper, Construction Loan Notes, and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. The State
Intermediate Municipal Bond Funds may also invest in long-term tax-exempt
instruments.
Certain types of Municipal Securities (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities, and certain
local facilities for water supply, gas, electricity, or sewage or solid waste
disposal. Private activity bonds are also issued for privately held or publicly
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owned corporations in the financing of commercial or industrial facilities. Most
governments are authorized to issue private activity bonds for such purposes in
order to encourage corporations to locate within their communities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the Federal income tax exemption for
interest on Municipal Securities. Moreover, with respect to Municipal Securities
issued by Florida, Georgia, Kansas, Maryland, North Carolina, South Carolina,
Tennessee, Texas, or Virginia issuers, NFT and NFST with respect to the Kansas
Fund, cannot predict which legislation, if any, may be proposed in the state
legislatures or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
Municipal Securities generally, or Florida, Georgia, Kansas, Maryland, North
Carolina, South Carolina, Tennessee, Texas, or Virginia Municipal Securities
specifically, for investment by one of these Funds and the liquidity and value
of such portfolios. In such an event, a Fund impacted would re-evaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
California. The following information relates specifically to
California Reserves and the California Municipal Bond Fund: This summary does
not purport to be a comprehensive description of all relevant facts. Although
the Trust has no reason to believe that the information summarized herein is not
correct in all material respects, this information has not been independently
verified for accuracy or thoroughness by the Trust. Rather, the information
presented herein has been culled from official statements and prospectuses
issued in connection with various securities offerings of the State of
California and local agencies in California, available as of the date of this
Statement of Additional Information. Further, the estimates and projections
presented herein should not be construed as statements of fact. They are based
upon assumptions which may be affected by numerous factors and there can be no
assurance that target levels will be achieved.
Economic Factors
Fiscal Years Prior to 1995-96. Pressures on the State's budget in the
late 1980's and early l990's were caused by a combination of external economic
conditions and growth of the largest General Fund Program--K-14 education,
health, welfare and corrections--at rates faster than the revenue base. These
pressures could continue as the State's overall population and school age
population continue to grow, and as the State's corrections program responds to
a "Three Strikes" law enacted in 1994, which requires mandatory life prison
terms for certain third-time felony offenders. In addition, the State's health
and welfare programs are in a transition period as result of recent federal and
State welfare reform initiatives.
As a result of these factors and others, and especially because a
severe recession between 1990-94 reduced revenues and increased expenditures for
social welfare programs, from the late 1980's until 1992-93, the State had
period of significant budget imbalance. During this period, expenditures
exceeded revenues in four out of six years, and the State accumulated and
sustained a budget deficit in its budget reserve, the Special Fund for Economic
Uncertainties ("SFEU") approaching $2.8 billion at its peak on June 30, 1993.
Between the 1991-92 and 1994-95 Fiscal Years, each budget required multibillion
dollar actions to bring projected revenues and expenditures into balance,
including significant cuts in health and welfare program expenditures; transfers
of program responsibilities and funding from the State to local governments;
transfers of about $3.6 billion in annual local property tax revenues from other
local governments to local school districts, thereby reducing State funding for
schools under Proposition 98; and revenue increases (particularly in the 1991-92
Fiscal Year budget), most of which were for a short duration.
Despite these budget actions, as noted, the effects of the recession
led to large, unanticipated deficits in the SFEU, as compared to projected
positive balances. By the 1993-94 Fiscal Year, the accumulated deficit was so
large that it was impractical to budget to retire such deficits in one year, so
a two-year program was implemented, using the issuance of revenue anticipation
warrants to carry a portion of the deficit over to the end of the fiscal year.
When the economy failed to recover sufficiently in 1993-94, a second two-year
Plan was implemented in 1994-95, again using cross-fiscal year revenue
anticipation warrants to partly finance the deficit into the 1995-96 fiscal
year.
Another consequence of the accumulated budget deficits, together with
other factors such as disbursement of funds to local school districts "borrowed"
from future fiscal years and hence not shown in the annual budget, was to
significantly reduce the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to adopt a budget for
the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the State to
carry out its normal annual cash flow borrowing to replenish cash reserves, the
State Controller issued
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registered warrants to pay a variety of obligations representing prior years' or
continuing appropriations, and mandates from court orders. Available funds were
used to make constitutionally-mandated payments, such as debt service on bonds
and warrants. Between July 1 and September 4, 1992, when the budget was adopted,
the State Controller issued a total of approximately $3.8 billion of registered
warrants.
For several fiscal years during the recession, the State was forced to
rely on external debt markets to meet its cash needs, as a succession of notes
and revenue anticipation warrants were issued in the period from June 1992 to
July 1994, often needed to pay previously maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier. The last and
largest of these borrowings was $4.0 billion of revenue anticipation warrants
which were issued in July, 1994 and matured on April 25, 1996.
1995-96, 1996-97 and 1997-98 Fiscal Years
With the end of the recession, and a growing economy beginning in 1994,
the State's financial condition improved markedly in the last two fiscal years,
with a combination of better than expected revenues, slowdown in growth of
social welfare programs, and continued spending restraint based on the actions
taken in earlier years. The last of the recession-induced budget deficits was
repaid, allowing the SFEU to post a positive cash balance for only the second
time in the l990's, totaling $1.8 billion as of June 30, 1998. The State's cash
position also returned to health, as cash flow borrowing was limited to $3
billion in 1996-97, and no deficit borrowing has occurred over the end of these
last two fiscal years.
In each of these two fiscal years, the State budget contained the
following major features:
1. Expenditures for K-14 schools grew significantly, as new revenues were
directed to school spending under Proposition 98. These additional
funds allowed several new education initiatives to be funded, and
raised K-14 per-pupil spending to around $4,900 by Fiscal Year 1996-97.
See "STATE FINANCES" - Proposition 98".
2. The Budgets restrained health and welfare spending levels, holding to
reduced benefit levels enacted in earlier years, and attempted to
reduce General Fund spending by calling for greater support from the
federal government. The State also attempted to shift to the federal
government a larger share of the cost of incarceration and social
services for illegal aliens. Some of these efforts were successful, and
federal welfare reform also helped, but as a whole the federal support
never reached the levels anticipated when the budgets were enacted.
These funding shortfalls were, however, filled by the strong revenue
collections, which exceeded expectations.
3. General Fund support for the University of California and the
California State University system grew by an average of 5.2 percent
increase, 3.3 percent and 6 percent per year, respectively, and there
were no increases in student fees.
4. General Fund support for the Department of Corrections grew as needed
to meet increased prison population. No new prisons were approved for
construction, however.
5. There were no tax increases, and starting January 1, 1997, there was a
5 percent cut in corporate taxes. The suspension of the Renter's Tax
Credit, first taken as a cost-saving measure during the recession, was
continued.
As noted, the economy grew strongly during these fiscal years, and as a
result, the General Fund took in substantially greater tax revenues than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid. As a result, there
was no dramatic increase in budget reserves, although the accumulated budget
deficit from the recession years was finally eliminated in the past fiscal year.
1998-99 Fiscal Year
On January 9, 1998, the Governor projected General Fund revenues for
the 1998-99 Fiscal Year of $55.4 billion, and proposed expenditures in the same
amount. In May 14, 1998, the Administration projected that revenues for the
1997-98 and 1998-99 Fiscal Years combined would be more than $4.2 billion higher
than was projected on
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January 9, 1998. The Governor proposed that most of this increased revenue be
dedicated to fund a 75% cut in the Vehicle License Fee ("VLF").
For the current fiscal year, the State legislature did not adhere to
the constitutional requirement that it adopt its budget for the upcoming fiscal
year by midnight of June 15th. On July 22, 1998, the Legislature unanimously
passed an $18.9 billion emergency-spending bill to cover the costs of, among
others, bond payments, paychecks for state workers, retirement pensions,
prisons, school and welfare programs from July 1st through August 5th. The
Legislature passed the Budget Bill on August 11, 1998.
Fiscal Year 1999-00 Budget Act
On June 16, 1999, the Governor signed the Budget Act. The final 1999
Budget Act estimated General Fund revenues and transfers of $63.0 billion, and
contained expenditures totaling $63.7 billion after the Governor used vetoed
certain expenditures by $581 million (both General Fund and special fund). The
1999 Budget Act also contained expenditures of $16.1 billion from special funds
and $1.5 billion from bond funds. The Governor's staff estimated that the
State's budget reserve fund would have a balance at June 30, 2000, of about $880
million. Not included in this amount was an additional $300 million that after
vetoed items were deducted was reallocated to provide funds for employee salary
increases and other matters such as litigation expenses.
The following were the major features of the 1999-00 Budget Act:
Proposition 98 funding for K-12 schools was increased by $1.6 billion
in General Fund moneys over revised 1998-99 levels, approximately an additional
$108.6 million than the minimum Proposition 98 guarantee. The 1999-00 funds were
allocated for major new programs included money for reading improvement, new
textbooks, school safety, improving teacher quality, funding bonuses for
teachers, providing greater accountability for school performance, increasing
preschool and after school care programs and funding deferred maintenance of
school facilities. The Budget includes $310 million for repayment of school
loans.
Funding for higher education increased substantially above the 1998-99
level. General Fund support was increased by $184 million (7.3 percent) for the
University of California and $126 million (5.9 percent) for the California State
University system. In addition, Community Colleges funding increased by $324.3
million (6.6 percent).
The Budget included increased funding of nearly $600 million for health
and human services.
Additional funds including $800 million from the General Fund will be
directed toward infrastructure costs, including $425 million in additional
funding for an Infrastructure Bank, costs related to prison construction,
additional equipment for train and ferry service as well as deferred maintenance
expenses for state parks.
The Legislature also enacted a one-year additional reduction of 10
percent of the VLF for calendar year 2000, at a General Fund cost of about $250
million in each of Fiscal Year 1999-00 and 2000-01 cover costs related to lost
funding to local governments.
Proposed 2000-01 Fiscal Year Budget
On January 10, 2000, the Governor released his proposed budget for
Fiscal Year 2000-01 (the "Proposed Budget"). The Proposed Budget generally
reflects that General Fund revenues for Fiscal Year 1999-00 will be higher than
projections made at the time of the 1999 Budget Act. The Proposed Budget also
reflects the latest estimated costs or savings as provided in various pieces of
legislation passed and signed after the 1999 Budget Act. Revised 1999-00
revenues are $65.2 billion or $2.2 billion higher than projections at the time
of the 1999 Budget Act. Revised 1999-00 expenditures are $65.9 billion or $2.1
billion higher than projections at the 1999 Budget Act.
The Proposed Budget projects General Fund revenues and transfers in
2000-01 of $68.2 billion. This includes anticipated payments from the tobacco
litigation settlement of $387.9 million and the receipt of one-time revenue from
the sale of assets.
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The Proposed Budget provides for General Fund expenditures of $68.8
billion. Included in the Proposed Budget are set-asides of $500 million for
legal contingencies and $100 million for various one-time legislative
initiatives. At the time of the release of the Proposed Budget, the projected
the budget reserve fund would have balance of about $2.420 billion at June 30,
2000, compared to the amount of $880 million projected at the time the 1999
Budget Act was signed on June 29, 1999.
Constitutional, Legislative and Other Factors
Certain California constitutional amendments, legislative measures,
executive orders, administrative regulations and voter initiatives could produce
the adverse effects described below, among others.
Revenue Distribution. Certain Debt Obligations in the California
Municipal Bond Fund may be obligations of issuers which rely in whole or in part
on California State revenues for payment of these obligations. Property tax
revenues and a portion of the State's general fund surplus are distributed to
counties, cities and their various taxing entities and the State assumes certain
obligations theretofore paid out of local funds. Whether and to what extent a
portion of the State's general fund will be distributed in the future to
counties, cities and their various entities is unclear.
Health Care Legislation. Certain Debt Obligations in the California
Municipal Bond Fund may be obligations which are payable solely from the
revenues of health care institutions. Certain provisions under California law
may adversely affect these revenues and, consequently, payment on those Debt
Obligations.
The Federally sponsored Medicaid program for health care services to
eligible welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program has provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations may be
imposed on payment for services rendered to MediCal beneficiaries in the future.
Under this approach, in most geographical areas of California, only
those hospitals which enter into a MediCal contract with the State of California
will be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate funding therefor.
California enacted legislation in 1982 that authorizes private health
plans and insurers to contract directly with hospitals for services to
beneficiaries on negotiated terms. Some insurers have introduced plans known as
"preferred provider organizations" ("PPOs"), which offer financial incentives
for subscribers who use only the hospitals which contract with the plan. Under
an exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.
These Debt Obligations may also be insured by the State of California
pursuant to an insurance program implemented by the Office of Statewide Health
Planning and Development for health facility construction loans. If a default
occurs on insured Debt Obligations, the State Treasurer will issue debentures
payable out of a reserve fund established under the insurance program or will
pay principal and interest on an unaccelerated basis from unappropriated State
funds. At the request of the Office of Statewide Health Planning and
Development, Arthur D. Little, Inc. prepared a study in December 1983, to
evaluate the adequacy of the reserve fund established under the insurance
program and based on certain formulations and assumptions found the reserve fund
substantially underfunded. In September of 1986, Arthur D. Little, Inc. prepared
an update of the study and concluded that an
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additional 10% reserve be established for "multi-level" facilities. For the
balance of the reserve fund, the update recommended maintaining the current
reserve calculation method. In March of 1990, Arthur D. Little, Inc. prepared a
further review of the study and recommended that separate reserves continue to
be established for "multi-level" facilities at a reserve level consistent with
those that would be required by an insurance company.
Mortgages and Deeds. Certain Debt Obligations in the California
Municipal Bond Fund may be obligations which are secured in whole or in part by
a mortgage or deed of trust on real property. California has five principal
statutory provisions which limit the remedies of a creditor secured by a
mortgage or deed of trust. Two statutes limit the creditor's right to obtain a
deficiency judgment, one limitation being based on the method of foreclosure and
the other on the type of debt secured. Under the former, a deficiency judgment
is barred when the foreclosure is accomplished by means of a nonjudicial
trustee's sale. Under the latter, a deficiency judgment is barred when the
foreclosed mortgage or deed of trust secures certain purchase money obligations.
Another California statute, commonly known as the "one form of action" rule,
requires creditors secured by real property to exhaust their real property
security by foreclosure before bringing a personal action against the debtor.
The fourth statutory provision limits any deficiency judgment obtained by a
creditor secured by real property following a judicial sale of such property to
the excess of the outstanding debt over the fair value of the property at the
time of the sale, thus preventing the creditor from obtaining a large deficiency
judgment against the debtor as the result of low bids at a judicial sale. The
fifth statutory provision gives the debtor the right to redeem the real property
from any judicial foreclosure sale as to which a deficiency judgment may be
ordered against the debtor.
Upon the default of a mortgage or deed of trust with respect to
California real property, the creditor's nonjudicial foreclosure rights under
the power of sale contained in the mortgage or deed of trust are subject to the
constraints imposed by California law upon transfers of title to real property
by private power of sale. During the three-month period beginning with the
filing of a formal notice of default, the debtor is entitled to reinstate the
mortgage by making any overdue payments. Under standard loan servicing
procedures, the filing of the formal notice of default does not occur unless at
least three full monthly payments have become due and remain unpaid. The power
of sale is exercised by posting and publishing a notice of sale for at least 20
days after expiration of the three-month reinstatement period. The debtor may
reinstate the mortgage, in the manner described above, up to five business days
prior to the scheduled sale date. Therefore, the effective minimum period for
foreclosing on a mortgage could be in excess of seven months after the initial
default. Such time delays in collections could disrupt the flow of revenues
available to an issuer for the payment of debt service on the outstanding
obligations if such defaults occur with respect to a substantial number of
mortgages or deeds of trust securing an issuer's obligations.
In addition, a court could find that there is sufficient involvement of
the issuer in the nonjudicial sale of property securing a mortgage for such
private sale to constitute "state action," and could hold that the private
right-of-sale proceedings violate the due process requirements of the Federal or
State Constitutions, consequently preventing an issuer from using the
nonjudicial foreclosure remedy described above.
Certain Debt Obligations in the California Municipal Bond Fund may be
obligations which finance the acquisition of single family home mortgages for
low and moderate income mortgagors. These obligations may be payable solely from
revenues derived from the home mortgages, and are subject to California's
statutory limitations described above applicable to obligations secured by real
property. Under California antideficiency legislation, there is no personal
recourse against a mortgagor of a single family residence purchased with the
loan secured by the mortgage, regardless of whether the creditor chooses
judicial or nonjudicial foreclosure.
Under California law, mortgage loans secured by single-family
owner-occupied dwellings may be prepaid at any time. Prepayment charges on such
mortgage loans may be imposed only with respect to voluntary prepayments made
during the first five years during the term of the mortgage loan, and then only
if the borrower prepays an amount in excess of 20% of the original principal
amount of the mortgage loan in a 12-month period; a prepayment charge cannot in
any event exceed six months' advance interest on the amount prepaid during the
12-month period in excess of 20% of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.
Proposition 13. Certain of the Debt Obligations may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. On June 6, 1978, California voters approved an amendment to
the California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. The effect of Article XIIIA was to limit ad
valorem taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.
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Section 1 of Article XIIIA, as amended, limits the maximum ad valorem
tax on real property to 1% of full cash value to be collected by the counties
and apportioned according to law. The 1% limitation does not apply to ad valorem
taxes or special assessments to pay the interest and redemption charges on any
bonded indebtedness for the acquisition or improvement of real property approved
by two-thirds of the votes cast by the voters voting on the proposition. Section
2 of Article XIIIA defines "full cash value" to mean "the County Assessor's
valuation of real property as shown on the 1975/76 tax bill under `full cash
value' or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred after the 1975
assessment." The full cash value may be adjusted annually to reflect inflation
at a rate not to exceed 2% per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors.
Legislation enacted by the California Legislature to implement Article
XIIIA provides that notwithstanding any other law, local agencies may not levy
any ad valorem property tax except to pay debt service on indebtedness approved
by the voters prior to July 1, 1978, and that each county will levy the maximum
tax permitted by Article XIIIA.
Proposition 9. On November 6, 1979, an initiative known as "Proposition
9" or the "Gann Initiative" was approved by the California voters, which added
Article XIIIB to the California Constitution. Under Article XIIIB, State and
local governmental entities have an annual "appropriations limit" and are not
allowed to spend certain moneys called "appropriations subject to limitation" in
an amount higher than the "appropriations limit." Article XIIIB does not affect
the appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising tax rates or fee schedules over the
subsequent two years.
Proposition 98. On November 8, 1988, voters of the State approved
Proposition 98, a combined initiative constitutional amendment and statute
called the "Classroom Instructional Improvement and Accountability Act."
Proposition 98 changed State funding of public education below the university
level and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (modified by Proposition 111 as discussed below), K-14 schools
are guaranteed the greater of (a) in general, a fixed percent of General Fund
revenues ("Test 1"), (b) the amount appropriated to K-14 schools in the prior
year, adjusted for changes in the cost of living (measured as in Article XIIIB
by reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General Fund
revenues, plus an additional small adjustment factor. If Test 3 is used in any
year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Proposition 98 permits the Legislature -- by two-thirds vote of both
houses, with the Governor's concurrence -- to suspend the K-14 schools' minimum
funding formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIIIB limit to
K-14 schools.
During the recession years of the early 1990s, General Fund revenues
for several years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the minimum
percentage provided in the law. The Legislature responded to these developments
by designating the "extra" Proposition 98 payments in one year as a "loan" from
future years' Proposition 98 entitlements, and also intended that the "extra"
payments would not be included in the Proposition 98 "base" for calculating
future years' entitlements. In 1992, a lawsuit was filed, California Teachers'
Association v. Gould, which challenged the validity of these off-budget loans.
During the course of this litigation, a trial court determined that almost $2
billion in "loans" which had been provided to school districts during the
recession violated the constitutional protection of support for public
education. A settlement was reached on April 12, 1996 which ensures that future
school funding will not be in jeopardy over repayment of these so-called loans.
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Proposition 111. On June 30, 1989, the California Legislature enacted
Senate Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education funding provisions of
Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990 ballot
as Proposition 111 -- was approved by the voters and took effect on July l,
1990. Among a number of important provisions, Proposition 111 recalculated
spending limits for the State and for local governments, allowed greater annual
increases in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State general fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees from the State
appropriations limit. Additionally, Proposition 111 exempted from the State
appropriations limit funding for capital outlays.
Proposition 62. On November 4, 1986, California voters approved an
initiative statute known as Proposition 62. This initiative provided the
following:
1. Requires that any tax for general governmental purposes imposed by
local governments be approved by resolution or ordinance adopted by a
two-thirds vote of the governmental entity's legislative body and by a
majority vote of the electorate of the governmental entity;
2. Requires that any special tax (defined as taxes levied for other than
general governmental purposes) imposed by a local governmental entity
be approved by a two-thirds vote of the voters within that
jurisdiction;
3. Restricts the use of revenues from a special tax to the purposes or for
the service for which the special tax was imposed;
4. Prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA;
5. Prohibits the imposition of transaction taxes and sales taxes on the
sale of real property by local governments;
6. Requires that any tax imposed by a local government on or after August
1, 1985 be ratified by a majority vote of the electorate within two
years of the adoption of the initiative;
7. Requires that, in the event a local government fails to comply with the
provisions of this measure, a reduction in the amount of property tax
revenue allocated to such local government occurs in an amount equal to
the revenues received by such entity attributable to the tax levied in
violation of the initiative; and
8. Permits these provisions to be amended exclusively by the voters of the
State of California.
In September 1988, the California Court of Appeal in City of
Westminster v. County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal.
Ct. App. 1988), held that Proposition 62 is unconstitutional to the extent that
it requires a general tax by a general law city, enacted on or after August 1,
1985 and prior to the effective date of Proposition 62, to be subject to
approval by a majority of voters. The Court held that the California
Constitution prohibits the imposition of a requirement that local tax measures
be submitted to the electorate by either referendum or initiative. It is
impossible to predict the impact of this decision on charter cities, on special
taxes or on new taxes imposed after the effective date of Proposition 62. The
California Court of Appeal in City of Woodlake v. Logan, 230 Cal. App.3d 1058,
282 Cal. Rptr. 27 (1991) , subsequently held that Proposition 62's popular vote
requirements for future local taxes also provided for an unconstitutional
referenda. The California Supreme Court declined to review both the City of
Westminster and the City of Woodlake decisions.
In Santa Clara Local Transportation Authority v. Guardino, 11 Cal. 4th
220 (1995), reh'g denied, modified [45 Cal. Rptr. 2d 204] (1995), the California
Supreme Court upheld the constitutionality of Proposition 62's popular vote
requirements for future taxes, and specifically disapproved of the City of
Woodlake decision as erroneous. The Court did not determine the correctness of
the City of Westminster decision, because that case appeared distinguishable,
was not relied on by the parties in Guardino, and involved taxes not likely to
still be at issue. It is
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impossible to predict the impact of the Supreme Court's decision on charter
cities or on taxes imposed in reliance on the City of Woodlake case.
California Senate Bill 1590, introduced February 16, 1996, would make
the Guardino decision inapplicable to any tax first imposed or increased by an
ordinance or resolution adopted before December 14, 1995. The California State
Senate passed the Bill on May 16, 1996 and would be constitutional as a
non-voted amendment to Proposition 62 or as a non-voted change to Proposition
62's operative date.
Proposition 218. On November 5, 1996, the voters of the State of
California approved Proposition 218, a constitutional initiative, entitled the
"Right to Vote on Taxes Act." Proposition 218 adds Articles XIIIC and XIIID to
the California Constitution and contains a number of interrelated provisions
affecting the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218 became effective on
November 6, 1996. The Sponsors are unable to predict whether and to what extent
Proposition 218 may be held to be constitutional or how its terms will be
interpreted and applied by the courts. However, if upheld, Proposition 218 could
substantially restrict certain local governments' ability to raise future
revenues and could subject certain existing sources of revenue to reduction or
repeal, and increase local government costs to hold elections, calculate fees
and assessments, notify the public and defend local government fees and
assessments in court.
Article XIIIC of Proposition 218 requires majority voter approval for
the imposition, extension or increase of general taxes and two-thirds voter
approval for the imposition, extension or increase of special taxes, including
special taxes deposited into a local government's general fund. Proposition 218
also provides that any general tax imposed, extended or increased without voter
approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 shall continue to be imposed only if approved by a majority
vote in an election held within two years of November 6, 1996.
Article XIIIC of Proposition 218 also expressly extends the initiative
power to give voters the power to reduce or repeal local taxes, assessments,
fees and charges, regardless of the date such taxes, assessments, fees or
charges were imposed. This extension of the initiative power to some extent
constitutionalizes the 1995 California State Supreme Court decision in Rossi v.
Brown, 9 Cal. 4th 688 [38 Cal. Rptr. 2d 363] (1995), which upheld an initiative
that repealed a local tax and held that the State constitution does not preclude
the repeal, including the prospective repeal, of a tax ordinance by an
initiative, as contrasted with the State constitutional prohibition on
referendum powers regarding statutes and ordinances which impose a tax.
Generally, the initiative process enables California voters to enact legislation
upon obtaining requisite voter approval at a general election. Proposition 218
extends the authority stated in Rossi by expanding the initiative power to
include reducing or repealing assessments, fees and charges, which had
previously been considered administrative rather than legislative matters and
therefore beyond the initiative power.
The initiative power granted under Article XIIIC of Proposition 218, by
its terms, applies to all local taxes, assessments, fees and charges and is not
limited to local taxes, assessments, fees and charges that are property related.
Article XIIID of Proposition 218 adds several new requirements making
it generally more difficult for local agencies to levy and maintain
"assessments" for municipal services and programs. "Assessment" is defined to
mean any levy or charge upon real property for a special benefit conferred upon
the real property.
Article XIIID of Proposition 218 also adds several provisions affecting
"fees" and "charges" which are defined as "any levy other than an ad valorem
tax, a special tax, or an assessment, imposed by a local government upon a
parcel or upon a person as an incident of property ownership, including a user
fee or charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are
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presented by a majority of the owners of the identified parcels, the local
government may not impose or increase the fee or charge. Moreover, except for
fees or charges for sewer, water and refuse collection services, no property
related fee or charge may be imposed or increased without majority approval by
the property owners subject to the fee or charge or, at the option of the local
agency, two-thirds voter approval by the electorate residing in the affected
area.
Proposition 87. On November 8, 1988, California voters approved
Proposition 87. Proposition 87 amended Article XVI, Section 16, of the
California Constitution by authorizing the California Legislature to prohibit
redevelopment agencies from receiving any of the property tax revenue raised by
increased property tax rates levied to repay bonded indebtedness of local
governments which is approved by voters on or after January 1, 1989.
Other Investment Information. The investment adviser believes that it
is likely that sufficient California Municipal Securities will be available to
satisfy the investment objective, policies and limitations of the California
Municipal Bond Fund, and to enable the Fund to invest at least 50% of its total
assets in California Municipal Securities at the close of each of its fiscal
quarters. In meeting this investment policy the Fund may invest in Municipal
Securities which are private activity bonds (including industrial development
bonds under prior law) the interest on which is subject to the 26% to 28%
federal alternative minimum tax applicable to individuals and the 20% federal
alternative minimum tax and the environmental tax applicable to corporations.
The environmental tax applicable to corporations is imposed at the rate of .12%
on the excess of the corporations modified federal alternative minimum taxable
income over $2,000,000. Investments in such securities, however, will not exceed
under normal market conditions 35% of the Fund's total assets when added
together with any taxable investments held by the Fund. Moreover, although the
Fund does not presently intend to do so on a regular basis, it may invest more
than 25% of its 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 Fund's investment adviser in light of the Fund's
investment objective and policies. To the extent that the Fund's assets are
concentrated in Municipal Securities payable from revenues on similar projects,
the Fund will be subject to the peculiar risks presented by such projects to a
greater extent than it would be if the Fund's assets were not so concentrated.
If the Trust's Board of Trustees, after consultation with the
investment adviser, should for any reason determine that it is impracticable to
invest at least 50% of the Fund's total assets in California Reserves and the
California Municipal Bond Fund at the close of each quarter of the Fund's
taxable year, the Board would re-evaluate each Fund's investment objective and
policies and consider changes in its structure and name or possible dissolution.
The following information relating to the State Intermediate Municipal
Bond Funds and the State Municipal Bond Funds supplements information relevant
to each of those Funds in the related Prospectuses.
Florida. Florida is the fourth most populous state with an estimated
1999 population of 15,322,040. By the year 2005, population will likely exceed
16.8 million. Population growth has historically been driven by retirement
migration with local economies weighted heavily in tourism and agriculture. Over
the past twenty years, retirement, agriculture and tourism have been
complemented by high technology jobs, service sector jobs and international
trade. In the meantime, the three traditional industries have taken on global
character. Trade and tourism, for example, have become international and this
has fueled foreign retirement migration.
The health of the national economy plays an important role in Florida's
fiscal soundness and economic development. Today, as this country enters its
ninth year of economic expansion, population growth in Florida, since 1990, has
averaged in excess of 204,000 per year. Local growth is supported by strength in
other regions of the county which become source feeder markets for population
growth in Florida.
The emergence of Florida as the fourth most populous state in the
United States has placed significant pressure on state and local government to
provide infrastructure and municipal and urban services. During the 1980's,
growth was so rapid that a significant backlog of need emerged which today, is
still being filled. Across the state, construction of new highway systems,
airport expansions, local school and university systems, hospitals and jails are
being put in place. Much of this growth is being funded by bonded revenues
secured by the expanding real property tax base. As of 1999, real property
values exceeded $828 billion, a 7.27% increase over 1998. Residential property
values accounted for over $544 billion in value. In addition to the rapid
population growth and resulting increases in improved residential properties,
commercial and industrial valuations have also grown consistently. There is now
over $125 billion in improved real property value in commercial and industrial
properties in Florida.
One reason commercial and industrial values have increased is the
strategic nature of the industries that
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have located and grown in the State. The Florida industrial base is concentrated
in high technology industries such as electronics, medical equipment, laser
optics, computer simulation and space travel. As a result, while defense
contract spending has declined nationally by over 25 percent, in real terms,
from 1985 to 1999, Florida's value of defense contracts has increased 25 percent
to nearly $6.8 billion in 1999 from $5.5 billion in 1998.
With increasing demands for services and comparatively low taxes,
Florida has experienced a rapid growth in the volume of bond debt. However,
because of rapid population growth however, per capita state debt remains well
below the national average. In 1998, the outstanding average state debt per
capita, among all states, was $1,790, compared with $1,138 per capita in
Florida.
The Growth Management Act of 1985 and the concurrency rules promulgated
has affected Florida's economic growth and development in some regions of the
State and could continue to impact the economy in the future. Concurrency means
that the services and infrastructure caused by new development must be in place
on or before such new development is operational. In addition, the location of
new development will be more carefully scrutinized with the respect to
environmental sensitivity and natural resource limitations. Growth management
legislation will affect all areas of the State with varying degrees of impact
depending on the specific local conditions such as, existing infrastructure
capacity, local environmental constraints, and limitations on natural resources
such as potable water and habitat preservation. Having now experienced more than
thirteen years subject to growth management rules, it appears that the Growth
Management Act of 1985 has, on balance, been beneficial. Growth management has
helped improve quality of life, ease infrastructure shortfalls and focused the
State agenda on preserving quality of life through growth management regulation
and other funded environmental land preservation programs. Under the current
state administration, a trend is developing where local development and growth
management issues are being turned back to the county level. This may increase
partnership at the local level as well as an increase in the number of special
interest groups at the county level.
Within Florida, regional economies perform differently according to
their urban or rural qualities and level of economic diversification. The
spectrum of regional economies spans dense urban centers such as Miami and Tampa
to rural agricultural regions of citrus, cattle ranching and sugar cane
production.
Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach, and
the Florida Keys. This area is highly urban and economically diverse. Tourism,
retirement, high technology computer manufacturing, medical industries,
international trade, winter vegetable crops and sugar cane production are the
prominent features of this area. Hurricane Andrew struck South Dade County in
Fall, 1992. Some 80,000 homes were destroyed along with local businesses and
Homestead Air Force Base. Since the hurricane, approximately 80 to 90 percent of
the homes have been restored. The restoration and rebuilding process is now
essentially complete. Over the long term, the effects of the hurricane may speed
the suburbanization of South Florida. However, in the interim, extensive
reinvestment and redevelopment is still needed. Other factors helping to
diminish agriculture locally include environmental preservations in sugarcane
lands, the effect of foreign competition due to NAFTA on local winter fruit and
vegetable growers and citrus canker which has destroyed most of the lime groves
in the region. In 1998, Florida led the nation in housing starts. The demand for
new single and multifamily homes should remain robust. Across the State, new
construction and renovations to existing structures is fueling the construction
industry. Redevelopment of the Orlando Naval Training Center and the
construction of Florida Gulf Coast University in Ft. Myers are worthy examples
of new infrastructure meeting the demands of increasing population.
In Broward and Palm Beach Counties, in particular, growth management's
concurrency requirements have played a significant role in limiting economic
expansion as compared with other regions of the State because of the lack of
infrastructure capacity. Community consensus based long range planning efforts
recently have been undertaken in northern Palm Beach County. These efforts are a
recognition of the pause in growth that has occurred and over time will help the
area accommodate new development. Recent property sales from the MacArthur
Foundation land holdings in northern Palm Beach County will also prompt new
development there.
Southwest Florida has emerged as a strong growth market. Traditionally,
very retirement oriented, the region's economy has begun to diversify through
increased employment opportunities and migration southward of citrus production.
Increased employment opportunity has occurred due to the overall size of the
market and improvements in infrastructure capacity. The improvement in
transportation access also has helped tourism and as a result indirectly buoyed
population growth rates by providing exposure and increased awareness of the
region as a retirement destination among visitors. The State of Florida has
opened Florida Gulf Coast University in Lee County, near the Fort Myers airport.
This is the State's 10th university in the public university higher education
system.
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Florida Gulf Coast University will accommodate 10,000 students within a decade
and provide opportunities for synergy between industry and education.
Central Florida is a premier world class resort/vacation destination.
The presence of Disney World, Universal Studios and other tourist oriented
recreational parks drives the central Florida economy. While the total size of
the market has grown rapidly, the economy is dependent on tourism and population
growth. Locally, the tourism industry has been more stable and seen better
growth over the past three decades than either the manufacturing or services
sectors. Two additional local industry concentrations, the laser/optical
research node and motion picture industries are helping to diversify the local
economy. Universal Studios has begun to expand its motion picture and theme park
facilities. Disney World has opened its fourth theme park, "Animal Kingdom,"
covering 500 acres. Disney's Celebration community of residential and commercial
activity is the fastest absorbing residential community in Central Florida.
Strong growth in tourism and large land areas available for expansion suggests
this region will lead the state in population growth in the near term.
International tourism has fueled the growth of an international retirement and
second home market throughout Florida. Today, in the tourist areas of the
market, one fifth of new homes built are sold to foreign retirees or vacation
homeowners. Places of origin include England, Germany, South America, and Puerto
Rico. International retirement markets are also growing in southwest and
Southeast Florida. There were 44 million visitors to the Orlando market in 1999.
The hotel market has been strong with 7,000 new hotel rooms added in 1999.
North Florida is rural in many areas. Jacksonville is the major city in
North Florida. The logging and paper industries, defense and retirement dominate
the local economy. The insurance industry also has a strong presence in
Jacksonville. Growth in North Florida peaked in the mid 1980's, coinciding with
the military defense buildup, prior to the full implementation of growth
management legislation. As urbanization and living costs increase in the south
and central parts of the State, population growth from national retirement
migration sources are increasing locally. Some large local land holders are
shifting focus away from forestry and agriculture to residential development of
land resources. This shift may be due in part to anticipated long term climate
change.
The Florida panhandle is quite rural with reliance on tourism, defense
and state government for employment opportunities. This area of the State has
the lowest per capita incomes and the smallest volume of population growth. With
the uncertainty of state budget funding in recent years and continuing defense
cutbacks, strong growth in this region of the State is not expected. Coastal
counties, however, remain attractive to continued economic development and
retirement migration because of the pristine beaches along the Gulf of Mexico.
In general, pursuant to the Florida Constitution and certain statutory
provisions, there are two basic types of obligations that may be issued in the
State of Florida: general obligation bonds and revenue bonds.
General obligation bonds are also known as full faith and credit bonds
because their repayment is based on the general credit and taxing power of the
borrowing government. The ad valorem tax is the most common source of revenue
pledged for the repayment of general obligation bonds. Being tax-supported,
general obligation bonds are typically used to finance the capital portion of
tax supported general purpose governmental projects, with public buildings,
roads, criminal justice facilities, and schools being the most common. Only
units of local government with taxing power can levy and collect ad valorem
taxes. The State of Florida has no ad valorem taxing power. General obligation
bonds payable from ad valorem taxes and maturing more than twelve months (other
than certain refunding bonds) after issuance may be issued to finance capital
projects authorized by law and only if the issuance of such bonds is approved by
the qualified electors.
Revenue bonds are obligations of a unit of government payable solely
from the revenues of a particular enterprise, such as a water and sewer system,
or from the revenues derived from a particular facility or user, or from non-ad
valorem revenues, such as the sales tax, or from other special funds authorized
to be pledged as additional security. Revenue bonds may also be payable from
non-specific revenues budgeted each year by the issuer. Unlike general
obligation bonds, revenue bonds do not constitute a debt of the issuing unit or
a pledge of its faith and credit, and they are not backed by the issuer's taxing
power.
A test was developed by the Florida Supreme Court for analyzing the
constitutional ability of an issuer to issue revenue bonds where a significant
portion of the proceeds would be used for private or non-governmental benefit.
Generally, these types of securities are referred to as industrial revenue bonds
or private activity bonds. Unless a particular use for the proceeds of a private
activity bond has been constitutionally or legislatively sanctioned (such as
multifamily and single family housing revenue bonds) or tested in the courts, a
determination
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must be made that the project to be financed with the proceeds of the private
activity bond will serve a paramount public purpose. The paramount public
purpose doctrine is designed to protect public funds from being exploited in
assisting or promoting private ventures when the public would be, at the most,
only incidentally benefited. Generally, an issuer may pledge something less than
all of its available non-ad valorem revenues without voter approval, subject to
the parameters established by the Florida Supreme Court.
The Florida courts have validated debt obligations commonly referred to
as certificates of participation or "COPS." In a typical COPS transaction, the
issuer leases either real or personal property from a special purpose
corporation. The special purpose corporation assigns its rights to the lease
payments to a corporate trustee who in turn issues certificates evidencing an
undivided proportionate interest of the owners of such certificates to receive
the lease payments. The lease payments made by the issuer may be derived from
both ad valorem and non-ad valorem revenues of the issuer. Although ad valorem
taxes can be used to make the lease payments, the Florida Supreme Court has held
that a referendum is not required because the obligation to make lease payments
is an annual obligation subject to renewal each year. If the issuing body elects
not to renew its lease for the next succeeding year and therefore fails to
appropriate the necessary moneys to make lease payments, the holders of the COPS
would be limited to the remedies available under the lease. At least one Florida
court has upheld the right of a governmental unit to not exercise the annual
renewal option of its lease.
When a mortgage, with a right of foreclosure, on real or personal
property (owned by a unit of government) is given to secure a bond, the Florida
courts have held that a pledge of such mortgage requires voter approval. In
effect, ad valorem taxes are indirectly pledged because, as the Florida Supreme
Court reasoned, the legislative body affected by such foreclosure might feel
"morally compelled" to levy taxes to prevent the loss of assets through
foreclosure. As a result, the majority of revenue bonds issued in the State of
Florida are not additionally secured by a mortgage on the governmental property
being financed. This prohibition is applicable even if the issuer has no taxing
power.
In Florida, the Division of Bond Finance has authority over the
issuance of State bonds pledging the full faith and credit of the State and the
issuance of revenue bonds payable solely from funds derived from sources other
than State tax revenues or rents or fees paid from State tax revenues.
Pursuant to the Florida Constitution, moneys sufficient to pay debt
service on State bonds must be appropriated as the same become due. Furthermore,
to the extent necessary, all State tax revenues, other than trust funds, must be
available for such appropriation purposes.
At the November 1994 general election, voters in the State approved an
amendment to the Florida Constitution limiting the amount of taxes, fees,
licenses and charges imposed by the State and collected during any fiscal year
to the amount of revenues allowed for the prior fiscal year, plus an adjustment
for growth. Growth is defined as the amount equal to the average annual rate of
growth in Florida personal income over the most recent twenty quarters times the
State revenues allowed for the prior fiscal year. The revenues allowed for any
fiscal year can be increased by a two-thirds vote of the State Legislature. The
limit is effective starting with fiscal year 1995-1996. Any excess revenues
generated will be deposited in the budget stabilization fund until it is fully
funded and then refunded to taxpayers. Included among the categories of revenues
which are exempt from the proposed revenue limitation, however, are revenues
pledged to state bonds and charges for services imposed by local, regional or
school district governing bodies.
The total outstanding principal of State bonds pledging the full faith
and credit of the State may not exceed fifty percent of the total tax revenues
of the State for the two preceding fiscal years, excluding any tax revenues held
in trust.
State bonds pledging the full faith and credit of the State, except
certain refunding bonds, generally may be issued only to finance or refinance
the cost of State fixed capital outlay projects subject to approval by a vote of
the electors. However, State bonds pledging the full faith and credit of the
State may be issued without a referendum to finance the construction of air and
water pollution control and abatement and solid waste disposal facilities to be
operated by a political subdivision of the State or by an agency of the State.
All forms of taxation other than ad valorem taxes are preempted to the
State, except as provided by general law. The State is prohibited from
collecting ad valorem taxes, which are taxes that are levied on real estate or
tangible personal property.
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Revenue bonds may be issued by the State of Florida or its agencies
without voter approval only to finance or refinance the cost of state capital
projects payable solely from funds derived from sources other than state tax
revenues or rents or fees paid from state tax revenues.
Bonds issued pursuant to the State Bond Act must be validated in
accordance with Florida Statutes. Once an issuer decides to finance a project
with bonds issued pursuant to the State Bond Act, a bond validation proceeding
is held in circuit court to determine whether the proposed bond issuance
complies with Florida law. The court makes findings on the questions of whether
the issuing body had the power to incur bonded debt and whether it exercised
that power in accordance with the law. The court may not weigh the fiscal
feasibility of the proposed bonds in the validation determination. The circuit
court judgment is final on all matters, other than constitutional issues, raised
at the validation hearing after time for appeal to the Supreme Court of Florida
has elapsed. Refunding bonds and bonds issued to finance or refinance capital
outlay projects for the system of public education are not required to be
validated.
The legislature has the power to confer on political subdivisions the
power to issue bonds, notes and other forms of indebtedness, except as otherwise
restricted by State and federal constitutional provisions, and such power is
conferred on municipal corporations, cities, counties and a variety of other
specially created districts and authorities. The bond validation process
described above is also available to such units of local government. In most
cases, bond validations are not statutorily mandated and many general obligation
and revenue bond issues have not been validated.
Generally, the Florida Constitution and Florida Statutes require that
the budget of the State and that of the units of local government in the State
be kept in balance from currently available revenues during each fiscal year. If
revenues collected during a fiscal year are less than anticipated, expenditures
must be reduced in order to comply with the balanced budget requirement.
Florida Statutes provide for a statewide maximum bond interest rate
which is flexible with the bond market and from which are exempted bonds rated
in one of the three highest ratings by nationally recognized rating services.
Nevertheless, upon request of a governmental unit, the State Board of
Administration may authorize a rate of interest in excess of the maximum rate,
provided relevant financial data and information relating to the sale of the
bonds is submitted to the State Board.
The Florida Sunshine Law, among other things, precludes public
officials from meeting with respect to the issuance of bonds other than at duly
noticed public meetings of the governmental entity. These provisions apply to
all meetings of any board or commission of any State agency or authority, or of
any county, municipal corporation, or political subdivision. No resolution,
rule, or formal action is considered binding except as taken at such duly
noticed public meetings.
Georgia. The State of Georgia (the "State") has one of the lowest per
capita state government debt levels in the United States. This is reflective of
the very conservative fiscal approach historically taken by the State's elected
officials, even when the State is enjoying a strong economy, as it has over the
past few years (Georgia is currently the third fastest growing state in the
nation, and the fastest growing state east of the Rocky Mountains).
General obligation bonds of the State are typically issued pursuant to
powers granted under Article VII, Section IV of the Constitution of the State of
Georgia (the "Georgia Constitution"), which provides that such bonds are the
direct and general obligations of the State. The key language is set out in
Article VII, Section IV, Paragraph VI of the Georgia Constitution, which
provides as follows:
"The full faith, credit and taxing power of the state are hereby
pledged to the payment of all public debt incurred under this article and all
such debt and the interest on the debt shall be exempt from taxation (emphasis
added). Such debt may be validated by judicial proceedings in the manner
provided by law. Such validation shall be incontestable and conclusive."
Article VIII, Section IV, Paragraph III of the Georgia Constitution
further mandates that the General Assembly "shall raise by taxation and
appropriate each fiscal year... such amounts as are necessary to pay debt
service requirements in such fiscal year on all general obligation debt." This
paragraph further provides for the
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establishment of a special trust fund which is designated the "State of Georgia
General Obligation Debt Sinking Fund" which is used for the payment of the
annual debt service requirements on all state general obligation debt.
Article VII, Section IV, Paragraph II of the Georgia Constitution
establishes certain debt limitations. The paragraph essentially provides that
the cumulative annual debt service for both general obligation debt and
guaranteed revenue debt may not exceed 10% of the total revenue receipts, less
refunds paid to the State treasury, in the preceding fiscal year.
The Georgia Constitution also prevents State departments and agencies
from circumventing these debt limitation provisions by prohibiting such
departments and agencies from executing contracts which may be deemed to
constitute a security for bonds or other public obligations. (See Article VII,
Section IV, Paragraph IV of the Georgia Constitution).
The Georgia Constitution does authorize the State to incur: "Public
debt to supply a temporary deficit in the state treasury in any fiscal year
created by a delay in collecting the taxes of that year. Such debt shall not
exceed, in the aggregate, 5% of the total revenue receipts, less refunds, of the
state treasury in the fiscal year immediately preceding the year in which such
debt is incurred." (See Georgia Constitution, Article VII, Section IV, Paragraph
I(b).) However, since this provision of the Constitution was enacted, the State
has never incurred such temporary debt.
Virtually all debt obligations represented by bonds issued by the State
of Georgia, counties or municipalities or other public subdivisions, and public
authorities require a validation by a judicial proceeding prior to the issuance
of such obligations. The judicial validation makes these obligations
incontestable and conclusive, as provided under the Georgia Constitution. (See
Article VII, Section IV, Paragraph VI of the Georgia Constitution).
The State government operates on a fiscal year beginning on July 1st
and ending on June 30th. Each year the State Economist, the Governor and the
State Revenue Commissioner jointly prepare a revenue forecast upon which the
State budget is based; that budget is then debated, amended, and approved by the
Georgia General Assembly. As of June 30, 1999, the State had a revenue shortfall
reserve fund of $380,883,293.88. Total net revenue collections for the fiscal
year ending on June 30, 1999 were $12,068,477,627, which represented a 8.8%
increase over fiscal year 1998 collections of $11,090,776,896. Additionally,
Georgia received $646,703,000 in revenue from the Georgia Lottery Corporation in
fiscal year 1999; all lottery revenues are earmarked for educational
expenditures.
In recent years, the State has enjoyed unprecedented growth with a
balanced economy that is not reliant upon any particular industry. Georgia leads
the world in carpet manufacturing in the northwest sector of the state and has a
significant textile and apparel industry. General Motors and Ford both have
major automobile assembly plants in the metropolitan Atlanta area, which has
virtually full employment. The real estate and construction industry is booming,
particularly in the metro Atlanta area. One such project is the $1.2 billion
expansion in downtown Atlanta announced by Turner Broadcasting System/Time
Warner. The Georgia Department of Industry, Trade and Tourism has been very
active and very successful in recent years in attracting a wide diversity of new
manufacturing companies which have constructed major facilities in the State and
also new distribution centers. One of the key factors contributing to this
success is Georgia's location, which places Georgia's manufacturers and
distributors within two truckload days of over 75% of the nation's industrial
market and largest consumer markets. The Port of Savannah is the country's ninth
busiest container port, and Atlanta's Hartsfield International Airport is
currently the busiest airport in the world. Passengers departing from Hartsfield
can reach 80% of the nation's population with a flight of two hours or less.
Because of the diversity of the State's economy, it is not likely to be
at risk for a recession in the near future. The strength of the State's economy
is not reliant upon one industry or one major group of companies. The statewide
unemployment in April, 2000 was at 3.1%, the lowest level since the Georgia
Department of Labor began keeping monthly unemployment records. Statewide jobs
reached the four million mark and according to Donald Ratajczak, the Director of
Georgia State University's economic forecasting center, the economy is predicted
to grow in calendar year 2000 at the robust rate of 4.5%. The State holds the
headquarters of such top flight companies as
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Home Depot, The Coca-Cola Company, BellSouth Corp., Georgia-Pacific, Delta
Airlines, Coca-Cola Enterprises (the selling company), AFLAC and Genuine Parts.
The State's economic future is very bright.
As reported by the Attorney General's Office in a March 1, 2000 letter
to the State Auditor (the "Audit Response") in accordance with and limited by
the ABA Statement of Policy Regarding Lawyers' Responses to Auditors' Request
for Information (December 1975), certain claims have been asserted against the
State or its departments or agencies:
Age International, Inc. v. State (two cases), Fulton Superior Court
Civil Action No. E-3793 and Fulton Superior Court Civil Action No. E-25073.
These two cases are suits for refund seeking about $153,000,000, including
claimed interest, plus additional interest, for liquor taxes allegedly paid by
out-of-state distillers. Plaintiffs are challenging the constitutionality of
Georgia's import tax on liquor, see Ga. Laws 1985, p. 665 (O.C.G.A. ` 3-4-60),
on Commerce Clause and related grounds. Georgia's pre-1985 liquor tax statute
was held by the U.S. Supreme Court to violate the Commerce Clause. See James B.
Beam Distilling Co. v. Georgia, 501 U.S. 529 (1991). The trial court granted the
State's motions for summary judgment, and 12 of the 23 claimants have appealed.
The total principal amount of the refund claims by the 12 plaintiffs who did
appeal now appears to be about $42,000,000; while the total principal amount of
the refund claims by the 11 plaintiffs who did not appeal, which seem to be
conclusively resolved in favor of the State by virtue of the trial court's
judgment, now appears to be about $54,000,000. The appeal has not been docketed
in the Georgia Supreme Court.(1)
Atlantic Coast Mechanical v. R.W. Allen-Beers, J.V. v. Board of Regents
and Bovis Constr. Corp., Fulton Superior Court Civil Action No. 1999CV05670;
Metro Waterproofing, Inc. v. R.W. Allen-Beers, J.V. v. Board of Regents and
Bovis Constr. Corp., Fulton Superior Court Action No. 1999CV09227; DACA, Inc. v.
R.W. Allen-Beers v. Board of Regents and Bovis Constr. Corp., Fulton State Court
Civil Action File No. 99V50155601-J, Cleveland Constr., Inc. v. R.W.
Allen-Beers, J.V. v. Board of Regents and Bovis Constr. Corp., Fulton Superior
Court Civil Action No. 1999CV15357. The Children's Medical Center project in
Augusta, Georgia, has generated approximately $11 million in delay, equitable
adjustment, and design claims from 30 subcontractors and the construction
manager, R.W. Allen-Beers J.V. The total project cost is $44 million, with
construction administration services being provided by Bovis Construction Corp.
as the program manager. Several subcontractors have filed lawsuits against Beers
and the surety, with Beers filing corresponding third-party complaints against
the Board of Regents of the University System of Georgia and Bovis. Bovis has
been working through the contract dispute resolution process with all parties to
resolve the claims. The first lawsuit is brought by Atlantic Coast Mechanical
for $5 million. The second lawsuit is brought by Metro Waterproofing (roofing)
for $114,000. In the third lawsuit, DACA (painting) is claiming $525,540. The
fourth lawsuit, brought by Cleveland Construction, Inc. (electrical), claims
$1,000,000 plus and is just entering discovery. Extensions for discovery (by
consent) have been filed in the first three cases. There are other major
claimants (six to seven figure claims) that have not filed suit as of yet.
Discovery proceedings in the filed lawsuits and settlement negotiations for all
claims are continuing.
DeKalb County, et al. v. State, et al., Fulton Superior Court Civil
Action No. E-67520 (filed March 13, 1998). This suit, against the State of
Georgia, the Department of Revenue, the Governor (in his official capacity), and
the Commissioner of the Department of Revenue (in his personal and official
capacities), alleges improper collection and distribution by the state and its
agencies of the Homestead Option Sales and Use Tax, a local option sales tax in
effect in DeKalb County since July, 1997. DeKalb's complaint, as amended, seeks
an accounting, mandamus, injunctive relief, declaratory judgment, unjust
enrichment, bailment, inverse condemnation, and a determination that O.C.G.A. `
48-8-67 (a law enacted during the pendency of the lawsuit) is unconstitutional.
The complaint, as amended, seeks damages of $27.7 million. Subsequently, DeKalb
County has re-estimated its alleged damages variously as $19, $15, and $12
million. DeKalb County's action was dismissed by the trial court, and this
dismissal was affirmed in part and reversed in part by the Georgia Supreme Court
in an order dated February 22, 1999. The Supreme Court's decision remands to the
trial court the accounting claim on the question of whether the Department of
Revenue made reasonable efforts to identify county tax proceeds that have been
determined by the Department to be unidentifiable to any county. This case is in
discovery in the trial court.
----------
(1) Since issuance of the Audit Response, the appeal has been docketed and is
pending.
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Ellis-Don Construction, Inc. v. Georgia State Financing and Investment
Commission, Fulton Superior Court Civil Action No. 2000CV18524. Construction on
the Animal Health Research Center at the University of Georgia has generated an
$8.2 million delay, equitable adjustment, and design claim from the contractor,
Ellis-Don Construction, Inc. The State believes it has significant counterclaims
to assert against Ellis-Don. The case is now entering the discovery phase.
General Motors Acceptance Corp. v. Jackson, Fulton Superior Court Civil
Action No. 1999CV06252 ("GMAC"), Bank of America, N.A. as successor by merger to
NationsBank, N.A. v. Jackson, Fulton Superior Court Civil Action No.
1999CV10366; Chrysler Financial Co. LLC v. Jackson, Fulton Superior Court Civil
Action No. 1999CV10369; SunTrust Bank, Atlanta, et al. v. Jackson, Fulton
Superior Court Civil Action No. 1999CV10385; First Union National Bank v.
Jackson, Fulton Superior Court Civil Action No. 1999CV12508. These suits by
financial institutions seek refunds of sales taxes, based upon alleged bad debts
on installment sales contracts purchased from Georgia motor vehicle dealers, in
the approximate respective amounts of $300,000, $2,500,000, $2,000,000,
$1,400,000 and $459,000. The total principal amount of these and all similar,
pending administrative claims for refund (for the years 1991-1999) is
approximately $36,000,000. The four cases filed after the GMAC case have been
temporarily stayed pending the outcome of the GMAC case. After the filing of
cross-motions for summary judgment in the GMAC case, the Superior Court ruled in
favor of the Defendant State Revenue Commissioner. GMAC's appeal of the
decisions of the Superior Court has not yet been docketed in the Georgia Court
of Appeals.(1)
James Andrew Coleman v. United States of America, et al., Federal
District Court for the District of Columbia Case No. 1:98cv025559. This civil
action was filed against the Unites States, the "Executive Branch federal
defendant," William Jefferson Clinton, the State of Georgia, the State of
Mississippi, and the State of South Carolina. As of October 14, 1999, the State
of Georgia has not been legally served. The suit alleges that the United States
government's failure to enforce the purported terms of surrender ending the
Civil War have resulted in the inclusion in the Georgia state flag of a
Confederate battle flag, allegedly in violation of those terms of surrender. The
suit claims that said failure of enforcement violates various federal
constitutional and statutory provisions. The suit prays for relief in the form
of $40 billion in compensatory damages and $40 billion in punitive damages
against each named defendant. If the State of Georgia ever becomes a proper
party in the suit through legal service of process, the State intends to defend
vigorously. The State believes it has good and valid defenses, including but not
limited to Eleventh Amendment immunity.
PTI, Inc. et al., v Philip Morris, Inc, et al., Unites States District
Court for the Central District of California Case No. 99-08235NM(EX). The
complaint in this case, filed on August 13, 1999, requests declaratory,
equitable, injunctive and other forms of relief as well as monetary damages.
Among the named defendants are the State of Georgia, Zell Miller (individually
and officially), former Governor of Georgia, and Thurbert Baker (individually
and officially), current Attorney General of Georgia. The claims against the
State and the official claims against Messrs. Miller and Baker are not insured.
The suite challenges the master settlement agreement between most of the tobacco
manufacturers and 46 states (plus other jurisdictions) and the validity of
subsequent legislation related thereto. Couched largely as an antitrust suit,
the plaintiffs seek, among other things, disgorgement of funds paid pursuant to
the agreement. Under the agreement, Georgia is to receive over $4.8 billion
between the years 2000 and 2025. The defendant states have collectively filed a
motion to dismiss. The State believes it has good and valid defenses on
jurisdictional and other grounds.(2)
The above-referenced information is based on available public documents
and oral presentations made by and information received from officials at the
state Attorney General's Office, Georgia Department of Revenue, and participants
in the pending cases.
------------
(1) Since the issuance of the Audit Response, the appeal has been docketed and
is pending.
(2) Since the issuance of the Audit Response, the district court has granted the
states' motion to dismiss the case in its entirety. The time for appeal has not
yet expired.
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Kansas. Kansas is a large but sparsely populated state in the central
plains region of the United States. Kansas' approximately 2.6 million people are
increasingly concentrated in several urban centers that are located in the
northeast and south central regions of the state. Kansas' economy is primarily
based on manufacturing, wholesale and retail trade, finance, construction and
agriculture. Kansas is a major producer of livestock and grain. Stability in
durable goods manufacturing, and in the service, construction and trade
industries, has sustained steady economic growth in Kansas for the past several
years. Slower growth in jobs and personal income is forecast for Kansas through
the year 2000.
The University of Kansas Institute for Public Policy and Business
Research summarized its forecast for the Kansas economy through the year 2000 in
"The Outlook for Kansas and the Nation: 2000" Kansas Business Review, 23, No. 2,
pages 6 through 9, as follows:
The Kansas Economy(1)
The Kansas economy, which exhibited strong growth in 1997 and
1998, has shown some signs of slowing in 1999. Non-farm wage and salary
employment, a measure of the number of jobs in the state, grew 3.3
percent in 1997 and 3.5 percent in 1998 (Table 4). Although such jobs
increased at a 3.2 percent annual rate during the first quarter of
1999, the rate of increase slowed to 2.3 percent during the second
quarter and 1.9 percent during the third quarter. This leads to a
forecast of a 2.2 percent increase in jobs for all of 1999. This
reduced rate of job increase is expected to continue into the year
2000, with an expected rate of job growth of 2.1 percent.
Although the rate of job growth is expected to be lower in
1999 than in 1997 and 1998, the high level of economic activity at the
end of 1998 allowed the state economy to carry a low unemployment rate
over into 1999. Thus, for all of 1999 the unemployment rate is expected
to be 3.4 percent, about four tenths of a percentage point below that
of 1998. Although employment growth in 2000 is expected to be slower
than in 1999, it should still at least keep pace with the rate of
growth of the civilian labor force. As a result, the state's
unemployment rate in 2000 should be very close to what it was in 1999.
The Kansas Forecast -- Summary
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Civilian Labor Force (thousands) 1340 1366 1411 1450 1477
Growth Rate 0.5 2.0 3.2 2.8 1.9
Total Employment (thousands) 1279 1315 1357 1401 1429
Growth Rate 0.4 2.8 3.2 3.3 2.0
Wage & Salary Employment (thousands) 1228 1268 1312 1341 1369
Growth Rate 2.5 3.3 3.5 2.2 2.1
Unemployment Rate 4.5 3.8 3.8 3.4 3.3
Nominal Personal Income (millions) 58689 62363 65855 68973 72084
Growth Rate 6.1 6.3 5.6 4.7 4.5
Real Personal Income (millions of 1992 $) 58689 61340 64166 66170 67741
Growth Rate 4.0 4.5 4.6 3.1 2.4
</TABLE>
Personal income growth is also expected to slow somewhat, from 5.6
percent in 1998 to 4.7 percent in 1999 and 4.5 percent in 2000. Corrected for
inflation, real personal income growth is forecasted to fall from 4.6 percent in
1998 to 3.1 percent in 1999, and 2.4 percent in 2000. The declines in the rate
of personal income growth in both 1999 and 2000 are due partially to slower
nominal personal income growth and partially to higher inflation.
-----------
(1) The Kansas forecast is generated by the Kansas Econometric Model, developed
at the Institute for Public Policy and Business Research at the University of
Kansas.
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<PAGE>
The sectoral breakdown of the Kansas job growth forecast is shown in
Table 5. Job losses in the mining sector, which have been taking place for at
least a decade, accelerated during 1998 and 1999 as low oil prices forced
reduced activity in oil and gas extraction. However, the worst of the job losses
in 1999 occurred during the first half of the year. Not only did the job picture
stabilize during the third quarter of the year, but jobs increased modestly
during the fourth quarter, as crude oil prices, continued on an upward swing.
The forecast is for employment in mining to remain stable in 2000.
Kansas Employment Growth Breakdown (Annual Growth Rate)
<TABLE>
<CAPTION>
1988-1997* 1998 1999 2000
<S> <C> <C> <C> <C>
Mining -3.0 -10.3 -5.7 -0.8
Construction 2.6 4.7 7.9 4.7
Durable Goods Manufacturing 1.6 5.5 0.0 -0.1
Nondurable Goods Manufacturing 1.4 1.3 -0.8 1.1
Transportation and Utilities 1.4 3.6 2.9 1.6
Wholesale Trade 1.3 1.1 0.8 1.0
Retail Trade 2.4 3.5 3.3 2.5
Finance, Insurance and Real Estate 0.7 1.8 1.8 2.0
Services 4.6 5.4 2.9 3.1
State and Local Government 2.0 2.4 1.9 1.7
Federal Government -0.4 -1.9 -1.9 0.4
</TABLE>
*Average Annual Rate of Growth During the Decade 1987 to 1996.
The construction sector emerged as one of the strongest for job growth
in 1999. It exhibited strong job growth of 3.6 percent in 1997 and 4.7 percent
in 1998. The predicted 7.9 percent increase in construction jobs for 1999 is
based on an annual rate of increase of 8.3 percent during the first three
quarters of the year. Although somewhat higher interest rates will slow the rate
of increase, construction jobs are still expected to increase a strong 4.7
percent in 2000.
A major reason for the reduced rate of job growth in 1999 is the
performance of the manufacturing sector during the first three quarters of the
year. During 1997 and 1998, the durable goods manufacturing sector was one of
the driving forces in the growth of Kansas employment and personal income. Jobs
in this sector increased 6.7 percent and 5.5 percent in 1997 and 1998,
respectively. Continued growth in transportation equipment manufacturing, led by
aircraft manufacturers, pushed employment in durable goods manufacturing to new
highs. Because these were mostly jobs with well above average wage rates, they
had a significant impact on personal income as well. However, jobs in durable
goods manufacturing grew only 1.2 percent and 0.5 percent during the first two
quarters of 1999 and declined 0.5 percent during the third quarter, leading to a
flat forecast for the full year. The major causes for the reduction in 1999 job
growth in durable goods manufacturing are a smaller rate of job increase in the
transportation equipment manufacturing sector, and job losses in the
manufacturing of machinery, including electrical machinery. Although Boeing and
others continue to operate at a high level, the major buildup period appears to
be nearly over.
Jobs in durable goods manufacturing should remain nearly flat in 2000.
Although there will be no job gains in the transportation equipment subsector,
this will be nearly offset by reduced job losses in the manufacture of machinery
(including electrical) subsector. Jobs in the manufacture of machinery are
expected to decline 1.6 percent in 2000 following a 5.0 percent drop in 1999.
Since the transportation subsector and the machinery subsector make up nearly
three-fourths of the durable goods manufacturing sector, their performance
essentially determines the overall growth of the sector. Among the smaller
subsectors of durable goods manufacturing, jobs in stone, glass, and clay are
expected to grow 3.7 percent, jobs in primary metals are expected to increase
1.7 percent, and jobs in fabricated metals are expected to increase 0.8 percent.
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<PAGE>
Although the non-durable goods manufacturing sector added jobs during
the 1997 and 1998, it did not contribute to the addition of jobs to the Kansas
economy to the extent that the durable goods sector did. Nevertheless, jobs in
non-durable goods manufacturing grew 2.3 percent in the 1997 and 1.3 percent in
1998. The job increases in non-durable goods manufacturing were led by job
growth in the food and kindred products subsector (2.3 percent in 1997 and 2.5
percent in 1998). The food and kindred products sector is made up largely of
meat packing facilities located in the southwestern part of the state. In
addition, jobs in printing and publishing grew 5.2 percent in 1997 but remained
essentially flat in 1998. Although job in the food and kindred products
subsector are expected to increase a healthy 2.4 percent in 1999, expected job
losses in the rest of the non-durable goods manufacturing sector will more than
offset them, leading to an overall 0.8 percent job decline in non-durable goods
manufacturing in 1999. Of particular significance is an expected 4.5 percent
decrease in jobs in printing and publishing.
The non-durable goods manufacturing sector is expected to add jobs at a
modest 1.1 percent rate in 2000. Once again, job growth in the sector will be
led by the food and kindred products subsector, which is forecasted to grow 2.0
percent. Although jobs are not expected to increase significantly in the
printing and publishing subsectors, the large job loss of 1999 should not be
repeated. The food and kindred products and printing and publishing subsectors
make up nearly two-thirds of the employment in non-durable goods manufacturing
in Kansas. Among the smaller subsectors of non-durable goods manufacturing, jobs
in apparel are expected to remain flat, jobs in chemicals and allied products
will increase 0.8 percent, and jobs in petroleum and coal will increase 1.2
percent.
The transportation, communications, and public utilities sector, led by
job growth in the trucking and warehousing subsector and the communications
subsector, experienced a 2.9 percent increase in jobs in 1999, following 3.2 and
3.6 percent increased in 1997 and 1998, respectively. Although jobs in the
railroad subsector will decline slightly (0.8 percent decline) as will jobs in
the electric, gas and sanitary services subsector (0.5 percent decline), jobs in
the trucking and warehousing subsector will increase 2.8 percent. Jobs in the
rest of the transportation, communications and public utilities sector, which
includes the communications subsector, will increase 4.7 percent in 1999.
The transportation, communications, and public utilities sector is
expected to continue to grow in 2000, though at a 1.6 percent rate. Growth will
continue to be strong in the trucking and warehousing sector (3.2 percent),
while railroad jobs (6.2 percent decline) will continue to fall. Job increases
in communications should allow overall sector growth to be significant.
Jobs in retail trade increased a healthy 3.3 percent in 1999, after
growing 2.1 percent in 1997 and 3.5 percent in 1998. In particular, growth in
employment in general merchandise stores was robust in 1998 and early 1999,
averaging more than 6 percent. Jobs in food stores increased just 0.2 percent,
jobs at auto dealers and gas stations grew 1.0 percent, and jobs in apparel and
accessory stores declined 2.5 percent.
The retail trade sector is expected to continue to provide
above-average 2.5 percent job growth in 2000. Among the subsectors of retail
trade, jobs in general merchandise stores are forecast to increase 4.1 percent,
jobs in food stores are expected to increase 1.1 percent, jobs at auto dealers
and gas stations are expected to increase 0.6 percent, and jobs in apparel and
accessory stores are expected to decline 1.1 percent.
The finance, insurance, and real estate (FIRE) sector has exhibited
modest job growth during the last year and a half, following a big job increase
in 1997. Jobs in the sector increased 1.8 percent in 1999. Employment in banking
and insurance were both level in 1998, and indications are that banking
employment will be [sic] remain flat in 1999, while employment in insurance will
fall by 1.8 percent. Employment in the rest of the FIRE sector will grow a
robust 5.6 percent.
In 2000, the banking subsector is expected to exhibit a modest 0.6
percent job increase, while the banking sector endures a further 0.6 percent job
decline. The rest of the finance, insurance, and real estate sector is expected
to continue to be strong, with jobs increasing 4.5 percent. Overall, jobs in the
finance, insurance and real estate sector are expected to increase 2.0 percent
in 2000.
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The service sector has consistently been one of the fastest growing
sectors of the Kansas economy during the current decade. Job growth in the
sector averaged nearly 5 percent a year during 1996-1998. This sector has been
particularly important in Johnson County, and also in other metropolitan
counties, where high-paying business services job growth has contributed
significantly to strong economic growth. Jobs in the service sector will
increase 2.9 percent in 1999, down from a 5.5 percent increase in 1997 and a 5.4
percent jump in 1998. This significant drop in the growth of jobs in the service
sector is another reason for the slowdown in overall job growth in Kansas in
1999. Service sector jobs are expected to grow 3.1 percent in 2000. This is once
again a below-average rate of increase over the last decade. This forecast
contributes to the overall 2.1 percent rate of job growth predicted for Kansas
for 2000.
Kansas Personal Income Growth Breakdown (Annual Growth Rate)
<TABLE>
<CAPTION>
1988-1997* 1998 1999 2000
<S> <C> <C> <C> <C>
Personal Income-Nominal 5.4 5.6 4.7 4.5
Wages and Salaries 5.6 7.6 5.2 5.4
Nonfarm Proprietors' Income 4.8 6.8 7.3 4.9
Farm Proprietors' Income -0.3 3.9 23.3 0.1
Dividends Interest and Rent 4.5 3.0 2.9 2.9
Personal Contributions for Social 6.7 6.5 5.6 3.8
Insurance
Transfer Payments 6.3 3.0 2.9 3.3
Other Labor Income 5.7 3.3 3.2 4.4
Personal Income - Real ** 2.2 4.6 3.1 2.4
</TABLE>
* Average Annual Rate of Growth
** Deflated by the National Income and Products Accounts Personal Consumption
Deflator
The breakdown of the personal income forecast is shown in Table 6. Just as in
1997 and 1998, Kansas' personal income growth will be paced by a strong wage and
salary growth. In 1997, personal income growth of 6.3 percent was led by a 7.6
percent increase in wages and salaries. Similarly, in 1998 Kansas' 5.6 percent
increase in personal income was driven in large part by another 7.6 percent jump
in wages and salaries. The forecast for 1999 exhibits the same pattern; a
significant factor in the predicted 4.7 percent growth in personal income is the
forecasted 5.2 percent rate of increase in wages and salaries. One other
component of personal income, the income of non-farm proprietors, is expected to
grow faster than overall personal income. Such income is predicted to follow 6.8
percent growth in both 1997 and 1998 with a 7.3 percent increase in 1999. Among
the other components of personal income, dividends, interest and rent are
expected to grow 2.9 percent, transfer payments are expected to increase 2.9
percent, and other labor income is expected to increase 3.2 percent.
Wages and salaries in Kansas are expected to increase 5.4 percent in
2000, while non-farm proprietors' income is predicted to increase 4.9 percent,
contributing to an overall personal income growth rate of 4.5 percent. Among the
other components of personal income, dividends, interest and rent are expected
to increase by 2.9 percent, the same as in 1999. Transfer payments are expected
to grow 3.3 percent, slightly faster than in 1999. And other labor income is
expected to grow 4.4 percent, about a percentage point faster than in 1999.
Although in 1999 the Kansas economy has continued to add jobs at a rate
that is comparable to its average rate of job increase during the last decade,
this rate of job growth is down from the high rates of increase in 1997 and
1998. Slowdowns in two major sectors, one which grew rapidly in 1997 and 1998,
and another that has been at the heart of Kansas job growth for more than a
decade, account for much of the slow-down in 1999. The first sector, durable
goods manufacturing, has seen a leveling off of employment in aircraft
manufacturing, although at a relatively high level, while the second sector,
services, has seen a pronounced decline in its growth rate.
Other sectors, notably the construction sector, the retail trade
sector, and the transportation and public utilities sector, provided the support
for job growth in 1999. The services sector and the durable goods
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manufacturing sector are expected to perform in 2000 much as they did in 1999.
The construction sector will continue to provide above average growth, although
jobs in construction will increase at a slower rate than in 1999. Employment
growth in 2000 will also be stimulated by modest growth in employment in
nondurable goods manufacturing, a turn around from the decline suffered in 1999.
The major risks to the Kansas forecast come from the sectors already
mentioned. Higher interest rates and a buildup in the stock of houses, highways,
and other structures could cause employment growth in construction to be less
robust than predicted. A drop off in employment in the durable goods
manufacturing sector would cause overall employment and personal income growth
to shrink. Smaller than predicted growth in nondurable goods manufacturing,
perhaps through further declines in employment in the printing and publishing
industry, could also reduce the predicted rate of overall job growth. On the
other hand, a return of the rate of job growth in services to the average levels
of this decade would provide an impetus to higher job growth than has been
forecasted.
Maryland. The public indebtedness of the State of Maryland and its
instrumentalities is divided into four basic categories. The State issues
general obligation bonds, to the payment of which the State ad valorem property
tax is pledged, for capital improvements and for various State-sponsored
projects. The Maryland Department of Transportation issues limited, special
obligation bonds for transportation purposes payable primarily from specific,
fixed-rate excise taxes and other revenues related mainly to highway use. The
Maryland Stadium Authority issues limited special obligation bonds and notes for
purposes of financing stadiums and conference centers payable primarily from
lease rentals, and lottery and other revenues. Certain authorities issue
obligations payable solely from specific non-tax, enterprise fund revenues, and
for which the State has no liability and has given no moral obligation
assurance. The State and certain of its agencies also have entered into a
variety of lease purchase agreements to finance the acquisition of capital
assets. These lease agreements specify that payments thereunder are subject to
annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the
principal of and interest on its general obligation bonds when due. Neither the
Maryland Constitution nor the public general laws of Maryland impose any general
debt limit. Although the State has the authority to make short-term borrowings
in anticipation of taxes and other receipts up to a maximum of $100 million, the
State in the past 20 years has not issued short-term tax anticipation notes or
made any other similar short-term borrowings for cash flow purposes. The State
has not issued bond anticipation notes except in connection with a State program
to ameliorate the impact of the failure of certain State-chartered savings and
loan associations in 1985; all such notes were redeemed without the issuance of
debt.
The State Constitution prohibits the contracting of State debt unless
authorized by a law providing for the collection of an annual tax or taxes
sufficient to pay the interest when due and to discharge the principal within 15
years of the date of debt issuance. The Constitution also provides that the
taxes levied for this purpose may not be repealed or applied to any other
purpose until the debt is fully discharged. As a matter of practice, state
general obligation bonds, other than small denomination bonds and refunding
bonds, are issued to mature in serial installments designed to provide payment
of interest only during the first two years and an approximately level annual
amortization of principal and interest over the remaining years.
The State has financed and expects to continue to finance the
construction and acquisition of various facilities and equipment through
conditional purchase financings and similar transactions. All of the lease
payments under these arrangements are subject to annual appropriation by the
General Assembly. In the event that appropriations are not made, the State may
not be held contractually liable for the payments. These transactions are
subject to approval by the Board of Public Works.
2001 Budget--On April 4, 2000, the General Assembly approved the State
budget for fiscal year 2001. The Budget includes, among other things: (i)
sufficient funds to meet all specific statutory funding requirements; (ii)
sufficient funds to meet the actuarial recommended contributions for the seven
retirement systems, determined on a basis consistent with prior years' practice;
(iii) sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at $.21 per $100 of assessed valuation; (iv) $3.1 billion in
aid to local governments; (v) $596.3 million for capital projects (other than
transportation projects), including $172 million for public school construction;
(vi) $73.3 million in net general fund deficiency appropriations, including
$25.3 million to the State Reserve Fund.
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The State's fiscal year 2001 capital budget is to be funded with $471.8
million general obligation bonds, $2.0 billion general funds in the operating
budget; and $210 million with revenue bonds, including higher education academic
bonds ($25 million), Maryland Stadium Authority bonds ($10 million), and
transportation bonds ($175 million).
Based on the 2001 Budget, it is estimated that the general fund surplus
on a budgetary basis at June 30, 2001, will be approximately $19.6 million. It
is also estimated that the balance in the Revenue Stabilization Account of the
State Reserve Fund at June 30, 2001, will be $912.3 million equal to 9.8% of
general fund revenues.
After enjoying rapid economic growth in the 1980s, Maryland has
experienced declining rates of growth in the 1990s. Per capita personal income
in Maryland has grown at an average annual rate of 4.4% in 1998. Per capita
personal income has grown at a rate of 4.1% since 1989, slightly less than the
national average of 4.5%. Unemployment in Maryland peaked in 1982 at 8.5%, then
decreased steadily to a low of 3.7% in 1989. Unemployment was 4.9% in 1996, 5.1%
in 1997, and 4.6% in 1998. Retail sales in Maryland grew by 2.9% in 1996, 4.7%
in 1997, and 3.1% in 1998.
Services (including mining), wholesale and retail trade, government,
and manufacturing (primarily printing and publishing, food and kindred products,
instruments and related products, industrial machinery, electronic equipment,
and chemical and allied products) are the leading areas of employment in
Maryland. In contrast to the nation as a whole, more people in Maryland are
employed in government then in manufacturing.
Municipal Obligations of Maryland Local Governments. Maryland has 24
geographical subdivisions, comprised of 23 counties plus the independent City of
Baltimore, which functions much like a county. Some of the counties and the City
of Baltimore operate pursuant to the provisions of charters or codes of their
own adoption, while others operate pursuant to State statutes. Maryland counties
and the City of Baltimore receive most of their revenues from ad valorem taxes
on real and personal property, individual income taxes, transfer taxes,
miscellaneous taxes and aid from the State. Their expenditures include public
education, public safety, public works, health, public welfare, court and
correctional services, and general governmental costs.
The economic factors affecting the State, as discussed above, also have
affected the counties and the City of Baltimore. In addition, reductions in
State aid caused by State budget deficits have caused the local governments to
trim expenditures, and, in some cases, raise taxes.
Two bi-county agencies issue bonds to finance facilities for two large
suburban counties outside of Washington, D.C. The Washington Suburban Sanitary
Commission, which provides water and sewerage services, and the
Maryland-National Capital Park and Planning Commission, which administers a park
system for these counties, issues general obligation bonds.
Additionally, many of the municipal corporations in Maryland have
issued general obligation bonds. These municipalities are subject to various
economic risks and uncertainties, and the credit quality of the securities
issued by them may vary considerably from the credit quality of obligations
issued by Maryland counties.
Finally, many of Maryland's counties have established subsidiary
agencies with bond issuing powers, such as sanitary districts, housing
authorities, parking revenue authorities and industrial development authorities.
In addition, all Maryland municipalities have the authority under State law to
issue conduit revenue bonds payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them varies with the financial strengths of
the respective borrowers.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the Maryland Intermediate
Municipal Bond Fund and Maryland Municipal Bond Fund. The sources of the
information are the official statements of issuers located in Maryland, other
publicly available documents, and oral statements from various state agencies.
The Adviser has not independently verified any of the information contained in
the official statements, other publicly available documents, or oral statements
from various state agencies.
North Carolina. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total receipts during the period plus any surplus remaining in the State
Treasury at the beginning of the period. The State operates on a fiscal year
ending June 30th. The North
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Carolina General Assembly attempts to adopt a budget for the following fiscal
year by the end of the previous one and has successfully done so in 1999 and
2000.
The State of North Carolina is the eleventh most populous state
according to the most recent Census Bureau statistical abstract. Its economy is
a combination of manufacturing, agriculture, services and tourism. The State's
seasonally adjusted unemployment rate in May 2000 was 3.3%. In recent years, the
State has moved from an agricultural economy to a service and goods producing
economy. The State leads the nation in the production of textiles, tobacco
products and furniture. It is among the largest producers of pharmaceuticals,
electronic and telecommunications equipment. The principal agricultural products
are poultry, pork and tobacco. Charlotte is now the second largest financial
center in the nation, based on the assets of banks headquartered there. The
Research Triangle (Raleigh/Durham/Chapel Hill) boasts three major universities
and is known internationally for its technology and pharmaceutical industries.
The total General Fund appropriations for the 2000-2001 fiscal year is
$14.049 billion. The ending fund balance for the State's General Fund at June
30, 1999 was $1.430 billion. The budget adopted by the North Carolina General
Assembly for the fiscal year ending June 30, 2001 projects an ending General
Fund balance of approximately $476 million. Legislation was passed in the 2000
session of the North Carolina General Assembly authorizing a referendum in
November 2000 for the issuance of $3.1 billion in bonds to finance identified
repairs and renovations to facilities at the University of North Carolina's
sixteen campuses and the State's community colleges ($2.5 billion for the
universities and $600 million for the community colleges). If approved and
issued, these bonds would more than double the amount of the State's bonds
outstanding.
On December 15, 1999, the North Carolina General Assembly met in an
extra session, upon the Governor's request, to address needs in response to the
impacts of Hurricane Floyd. The purpose of this session was to authorize use of
the Budget Stabilization Reserve and the remaining credit balance in the General
Fund on June 30, 1999, and to make changes in law necessary to expedite recovery
assistance in Eastern North Carolina. Legislation passed that required the
Governor to establish a Hurricane Floyd Reserve Fund, with the purpose of
providing relief and assistance from the effects of Hurricane Floyd in the
following areas: housing assistance, economic recovery assistance, public health
and environmental recovery issues, public safety, social services and support to
local governments. Specifically, the General Assembly appropriated the following
amounts:
o $40 million for fiscal year 1999-2000 from the General Fund to the
Reserve Fund for crisis housing assistance;
o Reallocated funds appropriated for fiscal year 1999-2000 and previous
years for operation and maintenance of State agencies for
repairs/renovations or other capital projects and other nonrecurring
appropriations to the Reserve Fund; and
o $285,965,824 from the Savings Reserve Account ("rainy day fund") to the
Reserve Fund for crisis housing assistance.
The expenditures totaled $836,658,000. The 2000-2001 budget adopted by the North
Carolina General Assembly adds back into the Savings Reserve Account $120
million resulting in a balance of approximately $156 million as of June 30,
2000.
On November 23, 1998, 46 states' Attorneys General and the major
tobacco companies signed a proposed settlement ("Phase I") that reimburses
states for smoking-related medical expenses paid through Medicaid and other
health care programs. North Carolina could receive approximately $4.6 billion
over the next 25 years. The settlement was approved in North Carolina by a
Consent Decree in December 1998. On March 16, 1999, the General Assembly enacted
a law, pursuant to the Consent Decree, approving the establishment of a
foundation to help communities in North Carolina hurt by the decline of tobacco.
The foundation receives 50 percent of the settlement. A trust fund for tobacco
farmers and quota holders and a second trust fund for health programs, both to
be created by the General Assembly, each gets a quarter of the settlement. Phase
I payments are made to the State and then allocated to the foundation and
trusts, subject to legislative oversight.
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North Carolina is also one of 14 states that has entered into a major
settlement agreement ("Phase II") with several cigarette manufacturers.
Approximately $1.9 billion of settlement payments (under the National Tobacco
Growers Settlement Trust phase of the settlement agreement) will be paid to
North Carolina tobacco growers and allotment holders. Payments of this amount
began in December 1999 and are expected to average $155 million per year over a
12-year period. These payments are made directly to a trust for distribution to
growers and allotment holders and are not paid to the State or subject to direct
legislative oversight.
The following are cases pending or threatened in which the State faces
the risk of either a loss of revenue or an unanticipated expenditure. In the
Opinion of the Department of State Treasurer, however, any such loss of revenue
or expenditure would not materially adversely affect the State's ability to meet
its financial obligations.
Leandro, et al. v. State of North Carolina and State Board of
Education. On May 25, 1994, students and boards of education in five counties
filed suit requesting a declaration that the public education system of North
Carolina violates the State constitution by failing to provide adequate or
substantially equal education opportunities, and by denying due process of law.
The defendants' motion to dismiss was denied. However, the North Carolina
Supreme Court upheld the present funding system and remanded the case for trial
on the claim for relief based on the conclusion that the constitution guarantees
every child the opportunity to obtain a sound basic education. Five other
counties intervened and now allege claims for relief on behalf of their
students' right to a sound basic education on the basis of the high proportion
of at-risk students in their counties' systems. In the spring of 2000, a trial
was held in Hoke County on the issues as they affect "low wealth" counties. A
judgment is expected to be issued in October 2000 in this matter, with possible
further trial proceedings with regard to "high wealth" counties in Wake County.
Smith-Shaver cases. These cases are class action intangibles tax refund
lawsuits relating to prior litigation in which the United States Supreme Court
in 1996 ruled unconstitutional the intangibles tax previously collected by the
State on shares of stock. Refunds have been made with interest to those
taxpayers who complied with the applicable State tax refund statutes. The North
Carolina Supreme Court held in 1998 that the taxpayers who paid the intangibles
tax but did not comply with the State tax refund statute were nonetheless
entitled to intangibles tax refunds which are estimated at approximately $360
million for 1991 through 1994. Additional class action lawsuits claim
approximately $105 million for intangibles taxes paid for 1990. A Settlement
Agreement was approved in September 1999 providing for the payment of $440
million by the State. The North Carolina General Assembly appropriated $240
million in 2000 to pay the balance of the settlement. The payment of this
settlement fixes the State's liability for these claims and should complete the
litigation over North Carolina intangibles taxes paid on shares of stock.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula for
payment of disability retirement benefits and claiming impairment of contract
rights, breach of fiduciary duty, violation of other federal constitutional
rights and violation of state constitutional and statutory rights. The North
Carolina Court of Appeals and Supreme Court dismissed the fiduciary claims and
certain of the constitutional claims. The primary claim for unconstitutional
impairment of contract was tried in Superior Court in 1995, and the court issued
an order in favor of the plaintiffs. In 1997, the North Carolina Supreme Court
upheld the trial court's ruling. A determination of the actual amount of
liability and the payment process is being made by the parties. The plaintiffs
have submitted documentation to the court asserting that the cost and damages
and higher prospective benefit payments to the plaintiffs and class members
would amount to $407 million. Calculations and payments so far indicate that
retroactive benefits will be significantly less than estimated. Payments have
been made of approximately $73 million and the State estimates remaining
liability will not exceed $42 million. All retroactive and future benefit
payments are payable from the funds of the State's retirement systems.
N.C. School Boards Association case. In December 1998, plaintiffs,
including the school boards of six North Carolina counties, filed suit
requesting a declaration that certain payments to State administrative agencies
must be distributed to the public schools on the theory that such amounts are
fines which under the North Carolina Constitution must be paid to schools. The
plaintiffs allege that they are due approximately $84 million. The State
believes that sound legal arguments support the State's position that these
amounts may be retained by State administrative agencies. Dispositive motions
are tentatively scheduled to be heard by the court in the fall of 2000.
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Southeast Compact Commission - Disposal of Low-level Radioactive Waste.
North Carolina and seven other southeastern states created the Southeast
Interstate Low-level Radioactive Waste Management Compact to plan and develop a
site for the disposal of low-level radioactive waste generated in the member
states. North Carolina was assigned responsibility for development of the first
disposal site, with costs to be distributed equitably among the Compact members.
In 1997 the Compact Commission discontinued funding of the development of the
North Carolina site, alleging that the State was not actively pursuing the
permitting and development of the proposed site. North Carolina withdrew from
the Compact in 1999. The Compact recently voted to pursue sanctions against
North Carolina, including the repayment, with interest, by the State to the
Compact Commission of $80 million of Compact member payments expended on the
permitting of the site. The plaintiff Compact members are seeking to have the
United States Supreme Court exercise original jurisdiction for trial of this
matter. The North Carolina Attorney General's office believes that sound legal
arguments support the State's position on this matter.
The Adviser believes that the information summarized above described
some of the more significant matters relating to the North Carolina Intermediate
Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the
information are the official statements of the Department of State Treasurer of
North Carolina, other publicly available documents and oral statements from
various State agencies and individuals. The Adviser has not independently
verified any of the information contained in the official statements, other
publicly available documents, or oral statements from various State agencies.
South Carolina. The South Carolina Constitution mandates a balanced
budget. If a deficit appears likely, the State Budget and Control Board may
reduce appropriations during the current fiscal year as necessary to prevent the
deficit. If it is determined that a fiscal year has ended with an operating
deficit, the State Constitution requires that monies appropriated from the
Capital Reserve Fund must be reduced to the extent necessary and applied to the
year end operating deficit before withdrawing monies from the General Reserve
Fund for such purpose.
The State Constitution limits annual increases in State appropriations
to the average growth rate of the economy of the State and annual increases in
the number of State employees to the average growth of the population of the
State; provided, however, that these two limitations are subject to suspension
for any one fiscal year by a special vote in each House of the General Assembly.
The State Constitution requires a General Reserve Fund that equals
three percent of General Fund Revenue for the latest completed fiscal year.
Funds may be withdrawn from the General Reserve Fund only for the purpose of
covering operating deficits. The State Constitution also requires a Capital
Reserve Fund equal to two percent of General Fund Revenue for the latest
completed fiscal year.
The State Constitution requires that the General Assembly provide that,
if revenue forecasts before March 1 project that revenues for the current fiscal
year will be less than expenditures authorized by appropriation for the current
fiscal year, the current fiscal year's appropriation to the Capital Reserve Fund
shall first be reduced to the extent necessary before any reduction is made in
operating appropriation.
After March 1, monies from the Capital Reserve Fund may be appropriate
by a special vote of the General Assembly to finance previously authorized
capital improvement bond projects, to retire principal or interest on bonds
previously issued, and to pay for capital improvements or other nonrecurring
purposes. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item that has been reduced due to
application of the monies to a year-end deficit must go back to the General
Fund.
The State operates on a fiscal year beginning July 1 and ending June
30. For the fiscal year ended June 30, 1999, the State had a budgetary surplus
of $410 million and the Capital Reserve Fund and General Reserve Fund were fully
funded at the combined 5% level. The South Carolina General Assembly passed the
Fiscal Year 1999-2000 Appropriations Act that enacted a balanced budget where
most of the new revenue was allocated to property tax relief, health and human
services and education.
Positive economic growth in South Carolina has been driven, in part, by
gains in tourism, business services and international trade. In 1999, the State
announced $6.4 billion in economic development projects which added
approximately 29,900 new jobs.
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In 1999, employment increased two and eight-tenths percent (2.8%) while
the rate of employment growth in the United States was two and two-tenths
percent (2.2%). The unemployment rate for south Carolina in 1999 was four and
five-tenths percent (4.5%), while the unemployment rate in the United States was
four and two-tenths percent (4.2%).
A lawsuit, Glen E. Kennedy, et al vs. the South Carolina Retirement
System and South Carolina Budget and Control Board, was filed against the South
Carolina Retirement Systems (Systems) by a group of retired participants in the
Systems which challenges the Systems' treatment of annual leave calculation of
participants' retirement payments. The Circuit Court determined that the State
has been providing retirement benefits to its members in accordance with the
law. The Circuit Court decision was appealed to the State Supreme Court and, in
May 2000, the Supreme Court reversed the Circuit Court and ruled in favor of the
Plaintiffs. The State has filed a Petition for Rehearing with the Supreme Court
and cannot predict whether it will be granted. If the Petition for Rehearing is
not granted, or the Supreme Court affirms its decision on rehearing, the current
actuarial liability of the Systems for this new benefit is estimated to be in
excess of one billion dollars. In addition, the funding for this increase will
have to be provided.
Two class action lawsuits relating to the taxation of retirement
benefits are pending against the State. One challenges the taxation of federal
retirees' income, and the other challenges the State's law imposing income taxes
upon benefits paid to retired government employees by the South Carolina
Retirement Systems. The State filed a motion to dismiss in both cases. The State
prevailed on the motions; however, the plaintiff in the federal retiree suit
filed a motion to reconsider, and the plaintiff in the State retiree suit filed
a notice of appeal with the South Carolina Supreme Court. In the event of an
unfavorable outcome in both cases, the State's liability is not expected to
exceed $475 million for retroactive relief with an estimated unfavorable impact
on future year revenues of an additional $47.5 million per year.
While the State is uncertain as to the ultimate outcome of any of the
above-described lawsuits, it is vigorously defending its position in each case.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the South Carolina Intermediate
Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the
information are the official statements of issuers located in South Carolina,
other publicly available documents, or oral statements from various State
agencies. The adviser has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
Tennessee. The Constitution of the State of Tennessee forbids the
expenditure of the proceeds of any debt obligation for a purpose other than the
purpose for which it was authorized by statute. The Constitution also forbids
the authorization of any debt obligation, except as shall be repaid within the
fiscal year of issuance, for current operation of any state service or program.
Under Tennessee law, the term of the State's bonds cannot exceed the life of the
projects being financed. Furthermore, the amount of debt obligations of the
State of Tennessee cannot exceed the amount authorized by the Tennessee General
Assembly. The procedure for funding State of Tennessee debt is provided by
Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State
of Tennessee is the entity authorized to issue general obligation indebtedness
of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code
Annotated, the Funding Board of the State of Tennessee has a lien on the taxes,
fees and revenues from certain designated revenue sources for the full amount
required to service the State's general obligation indebtedness. Certain other
agencies and authorities in Tennessee issue obligations, payable solely from
specific non-tax enterprise fund revenues and which are not debts or liabilities
of the State of Tennessee nor is the full faith and credit pledged to the
payment thereof.
Under current state statutes, the State of Tennessee's general
obligation bonded debt issuance's are subject to an annual legal debt service
limitation based on a pledged portion of certain current year revenues. As of
June 30, 1999, the State of Tennessee's annual legal debt service limit of
$421.3 million was well above the debt service required of $125.9 million, with
a legal debt service margin of $295.4 million. Debt per capita equaled $187, and
the ratio of net general long-term bonded debt to assessed property valuation
was 1.4 percent.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1998-99. During fiscal year 1999, Tennessee continued several programs
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that were designed to position the State to remain competitive in attracting new
jobs while addressing several problem areas for the State. The State continued
its Basic Education Program which is designed to achieve salary equalization in
teachers' salaries and to provide funding for enrollment growth. The Governor of
Tennessee's first goal was to create a more effective and efficient state
government. To accomplish that goal, Tennessee contracted the service delivery
of the State's telecommunications network. Tennessee made improvements to its
child support collection system and successfully implemented an electronic
benefit transfer system relating to welfare payments and its food stamp program
reducing fraud, theft and abuse. Tennessee also expanded child care
opportunities and improved workforce development through adult education job
training and coordinated job placement initiatives.
The economic outlook for Tennessee remains generally favorable. The
State's economic diversity has improved substantially over the last several
years. Investments announced in new and expanding business exceeded one billion
dollars in every year since 1983 and exceeded two billion in the last seven
years. This growth created 23,103 new jobs in Tennessee for the year ended June
1999. As of June 1999, the State's unemployment rate was 3.6% well under the
national average of 4.5%. Based on current projections, the State's overall
growth is expected to exceed the national average into the next century
according to the Comprehensive Annual Financial Report for the State of
Tennessee for the year ended June 1999.
Despite the economic growth, the State initially predicted a $342
million budget shortfall for the fiscal year 2001. The Administration considered
a number of tax proposals, including a State income tax, that would have raised
revenues for the State. Ultimately, the Tennessee Legislature passed a balanced
budget that did not make significant cuts in expenditures but forecast increased
revenues based on one-time sources and has consecutive revenue projections. As a
result, Standard & Poor's lowered the State of Tennessee's debt rating to
AA-plus. Fitch and Moody's stopped short of a downgrade but Moody's placed the
State on its watch list for a possible downgrade.
Texas. Except as specifically authorized, the Texas Constitution
generally prohibits the creation of debt by or on behalf of the State, with only
limited exceptions. In addition, the Constitution prohibits the Legislature from
lending the credit of the State to any person, including municipalities, or
pledging the credit of the State in any manner for the payment of the
liabilities of any individual, association of individuals, corporation or
municipality. The limitations of the Constitution do not prohibit the issuance
of revenue bonds, since the Texas courts (like the courts of most states) have
held that certain obligations do not create a "debt" within the meaning of the
Constitution. The State and various State agencies have issued revenue bonds
payable from the revenues produced by various facilities or from lease payments
appropriated by the Legislature. Furthermore, obligations which are payable from
funds expected to be available during the current budget period, do not
constitute "debt" within the meaning of the constitutional prohibition.
Article III, Section 49-j of the Texas Constitution prohibits the
Legislature from authorizing additional state debt payable from general
revenues, including authorized but unissued bonds and lease purchase contracts
in excess of $250,000 or for a term of greater than five years, if the resulting
annual debt service exceeds five percent of an amount equal to the average
amount of general revenue for the three immediately preceding years, excluding
revenues constitutionally dedicated for purposes other than payment of debt
service. Self-supporting general obligation bonds, although backed by the full
faith and credit of the State, are reasonably expected to be paid from other
revenue sources and are not expected to create a general revenue draw. The State
has long been identified with the oil and gas industry, but the Texas economy
has diversified in recent years, particularly with the growth of the computer
and electronics industries. Oil and gas related industries currently account for
only 10% of the State's economy. Today, there is nearly as much economic output
from high technology industries as from oil and gas, with more Texans now
employed in high technology than in oil and gas-related mining and
manufacturing. Service-producing sectors (which include transportation and
public utilities; finance and insurance and real estate; trade; services; and
government) are the major sources of job growth in Texas, and during the 1990's,
Texas added more jobs than any other state (2.35 million). Texas' location and
transportation and accessibility have made it a distribution center for the
southwestern United States as well as a growing international market for export
trade. Texas exports in 1999 totaled $91 billion, which has more than doubled
since 1990, and ranks the State a close second to California in foreign export
trade. With leadership provided by a strong high-technology sector and the
growth of exports, manufacturing job growth is expected to remain a significant
part of Texas' economic future. The State Comptroller of Public Accounts has
predicted that the overall Texas economy will slightly outpace national economic
growth in the long term.
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The State generally can be divided into six geo-economic regions. The
east region is a largely non-metropolitan region, in which the economy is
dependent on agricultural activities and the production and processing of coal,
petroleum and wood. The Dallas-Ft. Worth metroplex region is mostly
metropolitan, with diversified manufacturing, financial and commercial sectors.
The panhandle, Permian basin and Concho Valley regions are relatively sparsely
populated areas of the State, with an economy drawing heavily from petroleum
production and agriculture. The border region stretching from El Paso to
Brownsville is characterized by its economic ties to Mexico, tourism and
agriculture. The Gulf Coast region is the most populous region in the State and
has an economy centered on energy services, petro-chemical industries and
commercial activities resulting from agriculture and seaport trade. The economy
of the central corridor is based upon the public and private service sector,
recreation/tourism and high-technology manufacturing and communications. Because
the economic base is different from region to region, economic developments,
such as the strength of the U.S. economy, shifting export markets or changes in
oil prices or defense spending, can be expected to affect the economy of each
region differently.
The State's unemployment rate has fallen every year since 1992 and
dropped in 1999 to its lowest level since 1979. After averaging over 7.5% in
1992, the unemployment rate successively fell to 4.6% as of the end of 1999.
Most new jobs created in the past year have been in the service sector with most
of the growth in the health, business and miscellaneous services sectors.
Employment during the period between September 1998 through September 1999 also
increased in the wholesale and retail trade, government, transportation,
communications, public utilities, finance and construction industries. The mix
of job growth in Texas provides a strong base for sustainable growth because the
new jobs are largely in industries with better-than-average prospects for
continued growth, such as knowledge-based manufacturing and services. Per capita
personal income has since increased to approximately 94.7% of U.S. per capita
income as of 1999.
The State's general revenue fund provides an indication of the State's
financial condition. Effective as of the beginning of fiscal 1994, numerous
state funds were merged into the general revenue fund providing for a one-time
gain of approximately $1.2 billion for the fund. In the fiscal year 1999, the
general revenue fund accounted for most of the state's net revenue. Driven by
Medicaid spending and other Health and Human Services programs requiring federal
matching revenues, federal receipts were the state's number one source of income
in fiscal 1999. Sales tax, accounting for over 55% of total tax revenue, was
second. Licenses, fees, fines and penalties are now the third largest source of
revenue to the state, with motor fuels taxes and motor vehicle sales/rental
taxes following as fourth largest and fifth largest, respectively. The remainder
of the state's revenues are derived primarily from interest and investment
income, lottery proceeds, cigarette and tobacco, franchise, oil and gas
severance and other taxes. State revenue also benefited from $1.1 billion in
tobacco litigation settlement proceeds received from major U.S. tobacco
companies. The state has no personal or corporate income tax, although the state
does impose a corporate franchise tax based on the amount of a corporation's
capital and "earned surplus," which includes corporate net income and officers'
and directors' compensation. For each of the fiscal years ended August 31, 1995,
1996, 1997, 1998, and 1999, the general revenue fund contained a cash surplus of
approximately $2.110 billion, $2.271 billion, $2.685 billion, $3.330 billion and
$4.337 billion, respectively.
Virginia. Debt may be issued by or on behalf of the Commonwealth of
Virginia in accordance with the provisions of Article X, Section 9 of the
Virginia Constitution. Virginia counties, cities and towns may issue debt
pursuant to the provisions of Article VII, Section 10 of the Virginia
Constitution and the Public Finance Act of 1991 (Virginia Code Sections
15.2-2600 through 15.2-2663). In addition, certain types of debt, including
private activity bonds may be issued by various special purpose authorities,
including industrial development authorities created pursuant to the Industrial
Development and Revenue Bond Act (Virginia Code Sections 15.2-4900 through
15.2-4920).
Sections 9(a), (b) and (c) of Article X of the Virginia Constitution
provide for the issuance of debt to which the Commonwealth's full faith and
credit is pledged. Section 9(d) provides for the issuance of debt not secured by
the full faith and credit of the Commonwealth, but which may be supported by and
paid from Commonwealth tax collections. The Commonwealth and its localities may
also enter into leases and contracts that are not "debt" for constitutional
purposes, but are classified as long-term indebtedness on the issuer's financial
statements.
General obligation debt of the Commonwealth is authorized for various
purposes, including to meet emergencies, to redeem previous debt obligations,
and to pay the costs of certain capital projects. The Virginia Constitution
imposes certain restrictions on the amount of general obligation debt that may
be issued by the Commonwealth and, in some cases, such debt is subject to
approval in a state-wide election.
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The restrictions applicable to general obligation debt of the
Commonwealth, including limitations on the outstanding amount that may be issued
by the Commonwealth do not apply to obligations issued by the Commonwealth or
any of its institutions, agencies or authorities if the full faith and credit of
the Commonwealth is not pledged to the payment of such obligations. Various
types of revenue bonds have been issued under Section 9(d) of Article X for
which the Commonwealth's full faith and credit is not pledged. These bonds may
be paid in whole or in part from revenues received as appropriations by the
General Assembly from general tax revenues or solely from revenues derived from
revenue-producing undertakings. The Commonwealth has also incurred numerous
obligations with respect to the leasing or installment purchase of buildings,
equipment and personal property. These agreements are for various terms and
typically contain a nonappropriation clause so that the continuation of any such
lease or installment purchase agreement is subject to funding by the General
Assembly.
The Virginia Intermediate Municipal Bond Fund and Virginia Municipal
Bond Fund also invest in debt obligations issued by local governments. Local
government in the Commonwealth is comprised of approximately 95 counties, 40
incorporated cities, and 190 incorporated towns. The Commonwealth is unique in
that cities and counties are independent and their land areas do not overlap.
Cities and counties each levy and collect their own taxes and provide their own
services. Towns, which are units of local government and which continue to be
part of the counties in which they are located, levy and collect taxes for town
purposes but their residents are also subject to county taxes. Generally, the
largest expenditure by local governments in the Commonwealth is for public
education. Each county and city in the Commonwealth, with few exceptions,
constitutes a separate school district. Counties, cities and towns typically
also provide such services such as water and sewer services, police and fire
protection, and recreational facilities.
Local governments are authorized to issue general obligation debt and
debt secured by revenues of a revenue-producing undertaking under Article VII,
Section 10 of the Virginia Constitution. Generally, debt issued by a county
pledging the full faith and credit of the county is subject to voter approval
but is not limited as to outstanding amount. Debt pledging the full faith and
credit of a town or city is generally subject to a limit on the outstanding
amount of such debt equal to 10% of the assessed valuation of the real estate
subject to taxation in the city or town. Revenue bonds payable from revenues
derived from a revenue-producing undertaking and certain lease or installment
sale obligations that are subject to appropriation each year by the governing
body of the locality are not subject to such limit and are not subject to voter
approval in counties.
The primary sources of money available to localities to pay debt
service on general obligation bonds are real and personal property taxes, sales
tax and business license taxes. Virginia Code Section 15.2-2659, known as the
"state aid intercept provision" provides a mechanism for applying appropriations
to be made from the Commonwealth to any locality to any overdue debt service on
general obligation bonds issued by such locality.
Numerous obligations are also issued by industrial development
authorities, redevelopment and housing authorities, water and sewer authorities
and other issuers created and empowered to issue bonds by Virginia statute.
These issuers typically issue bonds payable from the revenues derived from a
particular undertaking and not secured by a pledge of the faith and credit of
the Commonwealth or any county, city or town. Typically these issuers do not
have taxing power.
The General Fund of the Commonwealth derives its revenues primarily
from individual and fiduciary income tax, corporation income tax, state sales
and use tax, public service corporations tax and taxes on premiums of insurance
companies. General Fund tax revenues grew at a rate of 10.5% from fiscal year
1998 to fiscal year 1999. Individual income tax revenue grew by 12.6%. Certain
other tax revenues experienced more modest growth and in one instance a decline.
Public service corporation revenues increased by 10.0%, while corporate income
tax revenue decreased by 6.7%. Sales and use tax revenue increased at a rate of
7.6%. Overall revenue grew by 10.6% mainly in individual income tax revenues and
non-tax revenues grew by 5.3%. Overall expenditures grew at a rate of 14.5%
compared to 6.0% in fiscal year 1998. Education expenditures grew by $487.4
million, or 15.1%, while administration of justice expenditures grew by $180.4
million, or 12.2%. In addition, general government expenditures increased by
$210.1 million or 55.1%. The large increase in revenues in fiscal year 1999
resulted in a General Fund balance of 1,599.6 million, an increase of 10.8% over
fiscal year 1998.
Historically, balances in the General Fund have decreased in some
years, for example in 1995, as a result of an increase in transfers from the
General Fund, and have increased at varying rates in other years, such as fiscal
years 1997 and 1998.
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In 1998, the Commonwealth ranked 12th in population among the 50
states. The Commonwealth's 1998 population was approximately 6,791,300.
According to the U.S. Department of Commerce, Bureau of Economic Analysis and
University of Virginia, Weldon Cooper Center for Public Service, the 1997 per
capita income for the Commonwealth was $26,109. According to the U.S. Department
of Labor, Bureau of Labor Statistics, the unemployment rate of 2.9% in 1998
compared to 4.5% nationally. Assessed value of locally taxed property exceeded
$428 billion in 1998 according to the Virginia Department of Taxation.
Effective November 23, 1998, the Commonwealth joined leading United
States tobacco product manufacturers, 46 other states, the District of Columbia
and five territories in the National Tobacco Settlement.
On February 23, 1999, the Richmond Circuit Court entered the Consent
Decree and Final Judgment allowing the Commonwealth to join in the Settlement.
The Settlement became final in November 1999 when 80% of the settling states (in
number and allocable share of the Settlement) approved the Settlement. The
Settlement provides, among other things, that tobacco companies pay a total of
$206 billion to the participating states by the year 2025. The Commonwealth's
share of the total amount paid to states through 2025 would by approximately
$4.1 billion. The exact dollar amount is contingent upon certain adjustments as
set forth in the Settlement. Under the Settlement, the tobacco companies will
make three types of payments. Tobacco companies will make five "initial
payments" totaling approximately $13 billion over the six year period ending in
January 2003. In addition, the tobacco companies will make "annual payments"
beginning on April 15, 2000. The Commonwealth received its share of the first
two initial payments in December 1999, and its share of the first annual payment
in April 2000.
During the 1999 General Assembly Session, legislation was adopted to
create the Tobacco Indemnification and Community Revitalization Commission and
Fund. Fifty percent of the annual amount received by the Commonwealth from the
Settlement will be deposited into the Tobacco Indemnification and Community
Revitalization Fund (the "TICR Fund"). The Commission is to determine the
appropriate recipients of moneys in the TICR Fund and distribute moneys in the
TICR Fund to (i) provide payments to tobacco farmers as compensation for the
elimination or decline in tobacco quota and (ii) promote economic growth and
development in tobacco dependent communities. The legislation also created the
Virginia Tobacco Settlement Foundation and the Virginia Tobacco Settlement Fund
(the "VTS Fund"). Ten percent of the annual amount received by the Commonwealth
from the Settlement will be deposited into the VTS Fund. The Foundation is to
determine the appropriate recipients of moneys in the VTS Fund and distribute
moneys in the VTS Fund to assist in financing efforts to restrict the use of
tobacco products by minors. The Governor submitted legislation for consideration
during the 2000 General Assembly Session that, if approved, would have provided
for the securitization of the 40% of the unallocated Settlement payments. The
proceeds of the securitization were to be used to finance certain priority
transportation projects to be determined. The General Assembly did not approve
the securitization proposal and submitted amendments to the 2000-2002 Budget
Bill to deposit the 40% unallocated Settlement payments to the General Fund.
The General Assembly approves a biannual budget for the Commonwealth.
The 2000-2002 Budget Bill presented about 3,642.1 million in operating increases
from the general fund above fiscal year 2000 appropriation levels. Of this
amount, $200.1 million was for deposit to the Revenue Stabilization Fund. The
remainder provided for increases in K-12 education ($615.9 million), higher
education ($185.3 million), transportation ($409.8) and public safety, economic
development, health and human resources, natural resources, new Office of
Technology and nonstate and cultural attractions. The 2000-2002 Budget Bill also
included continuation of the four year phase out of the sales tax on foods for
home consumption and $878.2 million for the next phase of the plan to eliminate
the personal property tax on personal use vehicles valued up to $20,000. In
addition to increases to operating funds, the 2000-2002 Budget Bill provided
$199.8 million in pay-as-you-go funding for capital projects.
The 2000 General Assembly Session ended March 10, 2000. The 2000-2002
Budget Bill, as amended by the General Assembly, was submitted to the Governor
for approval. The Governor returned it to the General Assembly with four item
vetoes and eleven recommended amendments for action at its one-day reconvened
session held on April 19, 2000. The General Assembly upheld all of the
Governor's item vetoes and ten of the eleven recommended amendments were
adopted.
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The Governor signed the 2000-2002 Budget Bill into law on May 19, 2000
(Chapter 1073, 2000 Virginia Acts of Assembly) as the 2000-2002 Appropriation
Act. The 2000-2002 Appropriation Act, as amended, went into effect on July 1,
2000.
The sources of the information described above include the statutes and
constitutional provisions referenced, to which reference is made for more
detailed information, and official statements of the Commonwealth and other
publicly available documents. Nations Funds have not independently verified any
of the information contained in these official statements or documents.
Options on Currencies
Certain Funds may purchase and sell options on currencies to hedge the
value of securities the Fund holds or intends to buy. Options on foreign
currencies may be traded on U.S. and foreign exchanges or over-the-counter.
Other Investment Companies
In seeking to attain their investment objectives, certain Funds may
invest in securities issued by other investment companies within the limits
prescribed by the 1940 Act, its rules and regulations and any exemptive relief
obtained by the Funds. Other than the Feeder Funds, which invest all of their
assets in corresponding Master Portfolios, each Fund currently intends to limit
its investments so that, as determined immediately after a securities purchase
is made: (a) not more than 5% of the value of its total assets will be invested
in the securities of any one investment company; (b) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group; and (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund or by the
Company as a whole. As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including Advisory fees. These expenses would be
in addition to the Advisory and other expenses that a Fund bears in connection
with its own operations. The Adviser has agreed to remit to the respective
investing Fund fees payable to it under its respective Investment Advisory
Agreement with an affiliated money market Fund to the extent such fees are based
upon the investing Fund's assets invested in shares of the affiliated money
market fund.
Each Fund is seeking or has obtained permission from the SEC to invest
in other Funds in the Nations Funds family.
Participation Interests and Company Receipts
The Government Bond Fund also may purchase from domestic financial
institutions and trusts created by such institutions participation interests and
trust receipts in high quality debt securities. A participation interest or
receipt gives the Fund an undivided interest in the security in the proportion
that the Fund's participation interest or receipt bears to the total principal
amount of the security. As to certain instruments for which the Fund will be
able to demand payment, the Fund intends to exercise its right to do so only
upon a default under the terms of the security, as needed to provide liquidity
or to maintain or improve the quality of its investment portfolio. It is
possible that a participation interest or trust receipt may be deemed to be an
extension of credit by the Fund to the issuing financial institution rather than
to the obligor of the underlying security and may not be directly entitled to
the protection of any collateral security provided by the obligor. In such
event, the ability of the Fund to obtain repayment could depend on the issuing
financial institution.
Participation interests and trust receipts may have fixed, floating or
variable rates of interest, and will have remaining maturities of thirteen
months or less (as defined by the SEC). If a participation interest or trust
receipt is unrated, the Adviser will have determined that the interest or
receipt is of comparable quality to those instruments in which the Fund may
invest pursuant to guidelines approved by the Board of Directors. For certain
participation interests or trust receipts the Fund will have the right to demand
payment, on not more than 30 days' notice, for all or any part of the Fund's
participation interest or trust receipt in the securities involved, plus accrued
interest.
Real Estate Investment Trusts
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains
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from any sales of properties. A mortgage REIT specializes in lending money to
developers of properties, and passes any interest income it may earn to its
shareholders.
REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both equity and mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended.
The real estate industry is particularly sensitive to economic
downturns. The value of securities of issuers in the real estate industry is
sensitive to changes in real estate values and rental income, property taxes,
interest rates, tax and regulatory requirements, overbuilding, extended
vacancies of properties, and the issuer's management skill. In addition, the
value of a REIT can depend on the structure of and cash flow generated by the
REIT. REITs and mortgage-backed securities are subject to the risk that
mortgagors may not meet their payment obligations. Each investment also has its
unique interest rate and payment priority characteristics. In addition, REITs
are subject to unique tax requirements which, if not met, could adversely affect
dividend payments. Also, in the event of a default of an underlying borrower or
lessee, a REIT could experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
Repurchase Agreements
The repurchase price under any repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by a Company's custodian in a segregated
account or in the Federal Reserve/Treasury book-entry system. Repurchase
agreements are considered to be loans by such Company under the 1940 Act.
Reverse Repurchase Agreements
At the time a Fund enters into a reverse repurchase agreement, it may
establish a segregated account with its custodian bank in which it will maintain
cash, U.S. Government securities or other liquid high grade debt obligations
equal in value to its obligations in respect of reverse repurchase agreements.
Reverse repurchase agreements involve the risk that the market value of the
securities the Funds are obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds'
obligation to repurchase the securities. Reverse repurchase agreements are
speculative techniques involving leverage, and are subject to asset coverage
requirements if the Funds do not establish and maintain a segregated account (as
described above). In addition, some or all of the proceeds received by a Fund
from the sale of a portfolio instrument may be applied to the purchase of a
repurchase agreement. To the extent the proceeds are used in this fashion and a
common broker/dealer is the counterparty on both the reverse repurchase
agreement and the repurchase agreement, the arrangement might be recharacterized
as a swap transaction. Under the requirements of the 1940 Act, the Funds are
required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
the Funds' asset coverage and other factors at the time of a reverse repurchase,
the Funds may not establish a segregated account when the Adviser believes it is
not in the best interests of the Funds to do so. In this case, such reverse
repurchase agreements will be considered borrowings subject to the asset
coverage described above.
Securities Lending
To increase return on portfolio securities, certain Funds may lend
their portfolio securities to broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, its agencies or instrumentalities, an irrevocable letter of
credit issued by (i) a U.S. bank that has total assets exceeding $1 billion and
that is a member of the Federal Deposit Insurance Corporation, or (ii) a foreign
bank that is one of the 75 largest foreign commercial banks in terms of total
assets, or any combination thereof. Such loans will not be made if, as a result,
the aggregate of all outstanding loans of the Fund involved exceeds 33% of the
value of its total assets which may include cash collateral received for
securities
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loaned. There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of good standing and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
Pursuant to the securities loan agreement a Fund is able to terminate the
securities loan upon notice of not more than five business days and thereby
secure the return to the Fund of securities identical to the transferred
securities upon termination of the loan.
Short Sales
Certain Funds may from time to time enter into short sales
transactions. A Fund will not make short sales of securities nor maintain a
short position unless at all times when a short position is open, such Fund owns
an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. This is a
technique known as selling short "against the box." Such short sales will be
used by a Fund for the purpose of deferring recognition of gain or loss for
federal income tax purposes.
Special Situations
Certain Funds may invest in "special situations." A special situation
arises when, in the opinion of the Adviser, the securities of a particular
company will, within a reasonably estimable period of time, be accorded market
recognition at an appreciated value solely by reason of a development applicable
to that company, and regardless of general business conditions or movements of
the market as a whole. Developments creating special situations might include,
among others: liquidations, reorganizations, recapitalizations, mergers,
material litigation, technical breakthroughs and new management or management
policies. Although large and well known companies may be involved, special
situations more often involve comparatively small or unseasoned companies.
Investments in unseasoned companies and special situations often involve much
greater risk than is inherent in ordinary investment securities.
Standard & Poor's Depositary Receipts ("SPDRs")
Certain Funds may purchase Standard & Poor's Depositary Receipts, or
SPDRs, which are interests in a unit investment trust holding a portfolio of
securities linked to the S&P 500 Index. Because a unit investment trust is an
investment company under the 1940 Act, a Fund's investments in SPDRs are subject
to the limitations set forth in Section 12(d)(1)(A) of the 1940 Act.
SPDRs closely track the underlying portfolio of securities, trade like
a share of common stock and pay periodic dividends proportionate to those paid
by the portfolio of stocks that comprise the S&P 500 Index. As a holder of
interests in a unit investment trust, a Fund would indirectly bear its ratable
share of that unit investment trust's expenses. At the same time the Fund would
continue to pay its own management and advisory fees and other expenses, as a
result of which the Fund and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in such unit investment
trusts.
SPDRs are subject to the risks of an investment in a broadly based
portfolio of large-capitalization common stocks, including the risk that the
general level of stock prices may decline, thereby adversely affecting the value
of such investment. In addition, because individual investments in SPDRs are not
redeemable, except upon termination of the unit investment trust, the liquidity
of small holdings of SPDRs will depend upon the existence of a secondary market.
Large holdings of SPDRs are called "creation unit size" and are redeemable in
kind only and are not redeemable for cash from the unit investment trust. The
price of SPDRs is derived and based upon the securities held by the unit
investment trust. Accordingly, the level of risk involved in the purchase or
sale of a SPDR is similar to the risk involved in the purchase or sale of
traditional common stock, with the exception that the pricing mechanism for
SPDRs is based on a basket of stocks. Disruptions in the markets for the
securities underlying SPDRs purchased or sold by a Fund could result in losses
on SPDRs.
Stand-By Commitments
Certain Funds may acquire "stand-by commitments" with respect to
Municipal Securities held in their portfolios. Under a "stand-by commitment," a
dealer agrees to purchase from a Fund, at a Fund's option, specified Municipal
Securities at a specified price. Stand-by commitments are exercisable by a Fund
at any time before the maturity of the underlying Municipal Securities, and may
be sold, transferred, or assigned by a Fund only with the underlying
instruments.
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The amount payable to a Tax-Free Bond Fund upon its exercise of a
stand-by commitment will normally be (i) the Fund's acquisition cost of the
Municipal Securities (excluding any accrued interest which a Tax-Free Bond Fund
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Tax-Free Bond
Fund owned the securities, plus (ii) all interest accrued on the securities
since the last interest payment date during that period. Under normal market
conditions, in determining net asset value a Tax-Free Bond Fund values the
underlying Municipal Securities on an amortized cost basis. Accordingly, the
amount payable by a dealer upon exercise of a stand-by commitment will normally
be substantially the same as the portfolio value of the underlying Municipal
Securities.
A Fund's right to exercise stand-by commitments will be unconditional
and unqualified. A stand-by commitment will not be transferable by a Fund,
although the Fund could sell the underlying Municipal Securities to a third
party at any time. Until a Fund exercises its stand-by commitment, it owns the
securities in its portfolio which are subject to the stand-by commitment.
The Funds expect that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for the security being acquired
which will be subject to the commitment (thus reducing the yield to maturity
otherwise available for the same security). When a Fund pays any consideration
directly or indirectly for a stand-by commitment, its cost will be reflected as
unrealized depreciation for the period during which the commitment is held by
that Fund. The Tax-Free Bond Funds will not acquire a stand-by commitment unless
immediately after the acquisition not more than 5% of the Funds' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.
Each Fund intends to enter into stand-by commitments only with banks
and broker/dealers which, in the Adviser's opinion, present minimal credit
risks. In evaluating the credit worthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims, and other relevant financial information.
The Funds would acquire stand-by commitments solely to facilitate
portfolio liquidity and do not intend to exercise their rights thereunder for
trading purposes. Stand-by commitments acquired by a Fund will be valued at zero
in determining net asset value. A Fund's reliance upon the credit of these
dealers, banks, and broker/dealers will be secured by the value of the
underlying Municipal Securities that are subject to the commitment. Thus, the
risk of loss to the Fund in connection with a "stand-by commitment" will not be
qualitatively different from the risk of loss faced by a person that is holding
securities pending settlement after having agreed to sell the securities in the
ordinary course of business.
Stripped Securities
Certain Funds may purchase stripped securities issued or guaranteed by
the U.S. Government, where the principal and interest components are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under STRIPS, the principal and interest
components are individually numbered and separately issued by the U.S. Treasury
at the request of depository financial institutions, which then trade the
component parts independently.
In addition, the Fund may purchase stripped mortgage-backed securities
("SMBS") issued by the U.S. Government (or a U.S. Government agency or
instrumentality) or by private issuers such as banks and other institutions. If
the underlying obligations experience greater than anticipated prepayments of
principal, the Fund may fail to fully recover its initial investment. The market
value of the class consisting entirely of principal payments can be extremely
volatile in response to changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest are generally higher than prevailing
market yields on other mortgage-backed obligations because their cash flow
patterns are also volatile and there is a greater risk that the initial
investment will not be full recovered. SMBS issued by the U.S. Government (or a
U.S. Government agency or instrumentality) may be considered liquid under
guidelines established by the Company's Board of Directors if they can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of the Fund's per share net asset value.
Although stripped securities may not pay interest to holders prior to
maturity, Federal income tax regulations require a Fund to recognize as interest
income a portion of the bond's discount each year. This income must then be
distributed to shareholders along with other income earned by the Fund. To the
extent that any
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shareholders in the Fund elect to receive their dividends in cash rather than
reinvest such dividends in additional Fund shares, cash to make these
distributions will have to be provided from the assets of the Fund or other
sources such as proceeds of sales of Fund shares and/or sales of portfolio
securities. In such cases, the Fund will not be able to purchase additional
income producing securities with cash used to make such distributions and its
current income may ultimately be reduced as a result.
U.S. and Foreign Bank Obligations
These obligations include negotiable certificates of deposit, banker's
acceptances and fixed time deposits. Each Fund limits its investments in
domestic bank obligations to banks having total assets in excess of $1 billion
and subject to regulation by the U.S. Government. Each Fund may also invest in
certificates of deposit issued by members of the Federal Deposit Insurance
Corporation ("FDIC") having total assets of less than $1 billion, provided that
the Fund will at no time own more than $100,000 principal amount of certificates
of deposit (or any higher principal amount which in the future may be fully
covered by FDIC insurance) of any one of those issuers. Fixed time deposits are
obligations which are payable at a stated maturity date and bear a fixed rate of
interest. Generally, fixed time deposits may be withdrawn on demand by a Fund,
but they may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. Although fixed
time deposits do not have a market, there are no contractual restrictions on a
Fund's right to transfer a beneficial interest in the deposit to a third party.
Each Fund limits its investments in foreign bank obligations (i.e.,
obligations of foreign branches and foreign subsidiaries of domestic banks, and
domestic and foreign branches and agencies of foreign banks) to obligations of
banks which at the time of investment are branches or subsidiaries of domestic
banks which meet the criteria in the preceding paragraphs or are branches or
agencies of foreign banks which (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) in terms of assets are
among the 75 largest foreign banks in the world; (iii) have branches or agencies
in the United States; and (iv) in the opinion of the Adviser, pursuant to the
established by the Board of Directors of the Company, are of an investment
quality comparable to obligations of domestic banks which may be purchased by a
Fund. These obligations may be general obligations of the parent bank in
addition to the issuing branch or subsidiary, but the parent bank's obligations
may be limited by the terms of the specific obligation or by governmental
regulation. Each Fund also limits its investments in foreign bank obligations to
banks, branches and subsidiaries located in Western Europe (United Kingdom,
France, Germany, Belgium, The Netherlands, Italy and Switzerland), Scandinavia
(Denmark and Sweden), Australia, Japan, the Cayman Islands, the Bahamas and
Canada. Each Fund will limit its investment in securities of foreign banks to
not more than 25% of total assets at the time of investment.
Each Fund may also make interest-bearing savings deposits in commercial
and savings banks in amounts not in excess of 5% of the total assets of the
Fund.
U.S. Government Obligations
Each Fund may invest in U.S. Government obligations. Examples of the
types of U.S. Government obligations that may be held by the Funds include, in
addition to U.S. Treasury bonds, notes and bills, the obligations of the Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Student
Loan Marketing Association, Central Bank for Cooperatives, Federal Home Loan
Mortgage Corporation, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Resolution Funding Corporation and Maritime Administration.
Obligations guaranteed as to principal or interest by the U.S. Government, its
agencies, authorities or instrumentalities are deemed to include: (a) securities
for which the payment of principal and interest is backed by an irrevocable
letter of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and (b) participations in loans made to foreign governments or
their agencies that are so guaranteed. The secondary market for certain of these
participations is limited. If such participations are illiquid they will not be
purchased.
U.S. Government obligations include principal and interest components
of securities issued or guaranteed by the U.S. Treasury if the components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program. Obligations issued or guaranteed as to
principal or interest by the U.S. Government, its agencies, authorities or
instrumentalities may also be acquired in the form of custodial receipts.
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These receipts evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued by the U.S. Government, its
agencies, authorities or instrumentalities.
Use of Segregated and Other Special Accounts
Options, futures and forward foreign currency contracts that obligate a
Fund to provide cash, securities or currencies to complete such transactions
will entail that Fund to either segregate assets in an account with, or on the
books of, the Company's custodian, or otherwise "covering" the transaction as
described below. For example, a call option written by a Fund will require the
Fund to hold the securities subject to the call (or securities convertible into
the needed securities without additional consideration) or liquid assets
sufficient to meet the obligation by purchasing and delivering the securities if
the call is exercised. A call option written on an index will require that Fund
to have portfolio securities that correlate with the index. A put option written
by a Fund also will require that Fund to have available assets sufficient to
purchase the securities the Fund would be obligated to buy if the put is
exercised.
A forward foreign currency contract that obligates a Fund to provide
currencies will require the Fund to hold currencies or liquid securities
denominated in a foreign currency which will equal the Fund's obligations. Such
a contract requiring the purchase of currencies also requires segregation.
Unless a segregated account consists of the securities, cash or
currencies that are the subject of the obligation, a Fund will hold cash, U.S.
Government securities and other high grade liquid debt obligations in a
segregated account. These assets cannot be transferred while the obligation is
outstanding unless replaced with other suitable assets. In the case of an
index-based transaction, a Fund could own securities substantially replicating
the movement of the particular index.
In the case of a futures contract, a Fund must deposit initial margin
and variation margin, as often as daily, if the position moves adversely,
sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Similarly, options on futures contracts require a Fund to
deposit margin to the extent necessary to meet the Fund's commitments.
In lieu of such assets, such transactions may be covered by other means
consistent with applicable regulatory policies. A Fund may enter into
off-setting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options and
hedging transactions. For example, a Fund could purchase a put option if the
strike price of that option is the same or higher than the strike price of a put
option sold by that Fund. Moreover, instead of segregating assets if a Fund held
a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Of course, the off-setting transaction must terminate at
the time of or after the primary transaction.
Variable- and Floating-Rate Instruments
Certain Funds may purchase variable-rate and floating rate obligations.
If such instrument is not rated, the Adviser will consider the earning power,
cash flows, and other liquidity ratios of the issuers and guarantors of such
obligations and, if the obligation is subject to a demand feature, will monitor
their financial status to meet payment on demand. In determining average
weighted portfolio maturity, a variable-rate demand instrument issued or
guaranteed by the U.S. Government or an agency or instrumentality thereof will
be deemed to have a maturity equal to the period remaining until the obligations
next interest rate adjustment. Other variable-rate obligations will be deemed to
have a maturity equal to the shorter of the period remaining to the next
interest rate adjustment or the time a Fund can recover payment of principal as
specified in the instrument.
Variable-rate demand notes held by a Money Market Fund may have maturities of
more than 397 days, provided (i) the Fund is entitled to payment principal on
not more than 30 days' notice, or at specified intervals not exceeding 397 days
(upon not more than 30 days' notice), and (ii) the rate of interest on such note
is adjusted automatically at periodic intervals which may extend up to 397 days.
The variable- and-floating rate demand instruments that the Funds may
purchase include participations in Municipal Securities purchased from and owned
by financial institutions, primarily banks. Participation interests provide a
Fund with a specified undivided interest (up to 100%) in the underlying
obligation and the right to demand payment of the unpaid principal balance plus
accrued interest on the participation interest from the institution upon a
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specified number of days' notice, not to exceed 30 days. Each participation
interest is backed by an irrevocable letter of credit or guarantee of a bank
that the Adviser has determined meets the prescribed quality standards for the
Funds. The bank typically retains fees out of the interest paid on the
obligation for servicing the obligation, providing the letter of credit, and
issuing the repurchase commitment.
Warrants
Certain Funds are permitted to invest in warrants. Warrants are
privileges issued by corporations enabling the owner to subscribe to and
purchase a specified number of shares of the corporation at a specified price
during a specified period of time. The prices of warrants do not necessarily
correlate with the prices of the underlying securities. The purchase of warrants
involves the risk that the purchaser could lose the purchase value of the
warrant if the right to subscribe to additional shares is not exercised prior to
the warrant's expiration. Also, the purchase of warrants involves the risk that
the effective price paid for the warrant added to the subscription price of the
related security may exceed the value of the subscribed security's market price
such as when there is no movement in the level of the underlying security.
When-Issued Purchases and Forward Commitments
A Fund may agree to purchase securities on a when-issued basis or enter
into a forward commitment to purchase securities. When a Fund engages in these
transactions, its custodian will segregate cash, U.S. Government securities or
other high quality debt obligations equal to the amount of the commitment.
Normally, the custodian will segregate portfolio securities to satisfy a
purchase commitment, and in such a case a Fund may be required subsequently to
segregate additional assets in order to ensure that the value of the segregated
assets remains equal to the amount of the Fund's commitment. Because a Fund will
segregate cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be adversely affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
A Fund will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When a Fund engages in when-issued and forward commitment transactions,
it relies on the other party to consummate the trade. Failure of such party to
do so may result in the Fund's incurring a loss or missing an opportunity to
obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining the net asset value of a
Fund starting on the date the Fund agrees to purchase the securities. The Fund
does not earn dividends on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When the Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the value of the
underlying securities are not reflected in the Fund's net asset value as long as
the commitment remains in effect.
Portfolio Turnover
Generally, the Domestic Stock Funds will purchase portfolio securities
for capital appreciation or investment income, or both, and not for short-term
trading profits. If a Fund's annual portfolio turnover rate exceeds 100%, it may
result in higher brokerage costs and possible tax consequences for the Portfolio
and its shareholders. For the Funds' portfolio turnover rates, see the
"Financial Highlights" in the Prospectus.
Investment Risks and Considerations
In addition to the investment risks and considerations identified in
certain of the securities descriptions above, there are additional investment
risks and considerations associated with an investment in certain of the Funds.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risks. The
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value of the stocks that the Fund holds, like the broader stock market, may
decline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when prices
generally decline. As of the date of this SAI, the stock market, as measured by
the S&P 500 Index and other commonly used indexes, was trading at or close to
record levels. There can be no guarantee that these levels will continue.
The State Municipal Bond Funds, the State Intermediate Municipal Bond
Funds, California Reserves, the California Bond Fund, and Marsico Focused
Equities Fund, are non-diversified funds, which means that they typically invest
in fewer issuers than diversified funds. Therefore, appreciation or depreciation
of an investment in a single issuer could have a greater impact on these Funds'
net asset value. Marsico Focused Equities Fund reserves the right to become a
diversified fund by limiting the investments in which more than 5% of its total
assets are invested.
The value of a Fund's investments in debt securities, including U.S.
Government Obligations, will tend to decrease when interest rates rise and
increase when interest rates fall. In general, longer-term debt instruments tend
to fluctuate in value more than shorter-term debt instruments in response to
interest rate movements. In addition, debt securities that are not backed by the
United States Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due. In addition,
obligations with the lowest investment grade rating (e.g., "BBB" S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the obligation. Unrated obligations may
be acquired by the Fund if they are determined by the Adviser to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Certain of the Funds' investments constitute derivative securities,
which are securities whose value is derived, at least in part, from an
underlying index or reference rate. There are certain types of derivative
securities that can, under certain circumstances, significantly increase a
purchaser's exposure to market or other risks. The Adviser, however, only
purchases derivative securities in circumstances where it believes such
purchases are consistent with such Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Funds' investments in particular instruments, see
"Appendix A -- Fund Securities."
Certain of the Funds may invest in securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but also present
greater risks than investments in more established companies with longer
operating histories and greater financial capacity.
Master Feeder Structure. The Feeder Funds are open-end mutual funds
that seek to achieve their investment objectives by investing all of its
investable assets in corresponding Master Portfolios which have the same
investment objectives. The Feeder Funds may withdraw their investment in the
Master Portfolios at any time if the Board of Directors of appropriate Company
determines that it is in the best interest of such Feeder Fund to do so. Upon
such withdrawal, the Board of Directors would consider what action might be
taken, including the investment of all of the assets of the Fund in another
pooled investment entity having the same investment objective as the Feeder Fund
or the hiring of an investment adviser to manage the Feeder Fund's assets in
accordance with its investment policies.
The Master Portfolios are separate series of NMIT, which is organized
as a business trust under the laws of Delaware. The Feeder Fund and other
entities that may investment in the Master Portfolios from time to time (e.g.,
other investment companies and commingled trust funds) will each be liable for
all obligations of the Master Portfolios. However, the risk of the Feeder Fund's
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance exists and a Portfolio itself
is unable to meet its obligations. Accordingly, the Companies' Boards of
Directors/Trustees believe that neither a Feeder Fund nor its shareholders will
be adversely affected by reason of a Feeder Fund's investing in a Master
Portfolio. As with any mutual fund, other investors in the Master Portfolios
could control the results of voting at the Master Portfolio level in certain
instances (e.g., a change in fundamental policies by the Master Portfolio which
was not approved by the Fund's shareholders). This could result in a Feeder
Fund's withdrawal of its investment in the Master Portfolio. Further, the
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withdrawal of other entities that may from time to time invest in the Master
Portfolios could have an adverse effect on the performance of such Master
Portfolios and the corresponding Feeder Fund, such as decreased economies of
scale, and increased per share operating expenses. In addition, the total
withdrawal by another investment company as an investor in a Master Portfolio
will cause the such Master Portfolio to terminate automatically in 120 days
unless a Feeder Fund and any other investors in the Master Portfolio unanimously
agree to continue the business of the Master Portfolio. If unanimous agreement
is not reached to continue the Master Portfolio, the Board of Directors/Trustees
of a Company would need to consider alternative arrangements for the Feeder
Fund, such as those described above. When the Fund is required to vote as an
interestholder of the Master Portfolio, current regulations provide that in
those circumstances the Feeder Fund may either seek instructions from its
security holders with regard to voting such proxies and vote such proxies in
accordance with such instructions or the Feeder Fund may vote its shares in the
Master Portfolio in the same proportion of all other security holders in the
Master Portfolio.
There may also be other investment companies through which you can
invest in the Master Portfolio which may have higher or lower fees and expense
than those of its corresponding Fund and which may therefore have different
performance results than the Feeder Fund.
Special Risk Relating to the High Yield Fund/Master Portfolio -- High
yield bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. The prices of high
yield bonds have been found to be less sensitive to interest-rate changes than
more highly rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in high
yield bond prices because the advent of a recession could lessen the ability of
a highly leveraged company to make principal and interest payments on its debt
securities. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield bonds,
especially in a thinly traded market. Legislation designed to limit the use of
high yield bonds in corporate transactions may have a material adverse effect on
a Fund's/Master Portfolio's net asset value and investment practices. In
addition, there may be special tax considerations associated with investing in
high yield bonds structured as zero coupon or payment-in-kind securities. A
Fund/Master Portfolio records the interest on these securities annually as
income even though it receives no cash interest until the security's maturity or
payment date. Also, distributions on account of such interest generally will be
taxable to shareholders even if the Fund/Master Portfolio does not distribute
cash to them. Therefore, in order to pay taxes on this interest, shareholders
may have to redeem some of their shares to pay the tax or the Fund/Master
Portfolio may have to sell some of its assets to reduce the Fund's/Master
Portfolio's assets and may thereby increase its expense ratio and decrease its
rate of return. The Sub-Adviser seeks to reduce risk through diversification,
credit analysis and attention to current developments and trends in both the
economy and financial markets. In addition, investments in foreign securities
may serve to provide further diversification.
Because certain high yield debt instruments that the High Yield
Fund/Master Portfolio purchases may be instruments issued by foreign
governments, agencies, corporations or other entities of countries, some of
which may be considered emerging markets countries, there are certain additional
risks associated with such investments.
Investors should also understand and consider carefully the special
risks involved in foreign investing. Such risks include, but are not limited to:
(1) restrictions on foreign investment and repatriation of capital; (2)
fluctuations in currency exchange rates, which can significantly affect a
Fund's/Master Portfolio's share price; (3) costs of converting foreign currency
into U.S. dollars and U.S. dollars into foreign currencies; (4) greater price
volatility and less liquidity; (5) settlement practices, including delays, which
may differ from those customary in U.S. markets; (6) exposure to political and
economic risks, including the risk of nationalization, expropriation of assets
and war; (7) possible impositions of foreign taxes and exchange control and
currency restrictions; (8) lack of uniform accounting, auditing and financial
reporting standards; (9) less governmental supervision of securities markets,
brokers and issuers of securities; (10) less financial information available to
investors; and (11) difficulty in enforcing legal rights outside the United
States.
Certain of the risks associated with investments by the High Yield
Fund/Master Portfolio in foreign securities are heightened with respect to
investment in emerging markets countries. Political and economic structures in
many emerging market countries, especially those in Eastern Europe, the Pacific
Basin, and the Far East, may be undergoing significant evolution and rapid
development, and may lack the social, political and economic stability
characteristic of more developed countries. Investing in emerging markets
securities also involves risks which are in addition to the usual risks inherent
in foreign investments. For example, some emerging
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market countries may have fixed or managed currencies that are not free-floating
against the U.S. dollar. Further, certain currencies may not be traded
internationally and some countries with emerging securities markets have
sustained long periods of substantially high inflation or rapid fluctuation in
inflation rates which can have negative effects on a country's economy or
securities markets.
MANAGEMENT OF THE COMPANIES
---------------------------
The business and affairs of the Companies are managed under the
direction of their respective Boards of Directors/Trustees. This SAI contains
the names of and general background information concerning each Trustee/Director
of the Companies.
The Companies 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.
The Directors/Trustees and executive officers of each Company and their
principal occupations during the last five years are set forth below. The
address of each, unless otherwise indicated, is 111 Center Street, Little Rock,
Arkansas 72201. Those directors who are "interested persons" of a Company (as
defined in the 1940 Act) are indicated by an asterisk(*).
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Companies Directorships
---------------------- ------------- -------------
<S> <C> <C>
Edmund L. Benson, III, 63 Director/Trustee Director, President and Treasurer,
Saunders & Benson, Inc. Saunders & Benson, Inc. (Insurance),
1510 Willow Lawn Drive Insurance Managers, Inc.
Suite 216 (insurance); Trustee, Nations
Richmond, VA 23230 Reserves, Master Investment Trust,
Nations Annuity Trust and Nations
Fund Trust; Director, Nations Fund,
Inc., and Nations LifeGoal Funds,
Inc.; Director, Nations Fund
Portfolios, Inc. through August,
1999.
William P. Carmichael, 56 Trustee Trustee - 231 Funds (investment company)
Succession Fund from 1993 to 1995, Time Horizon Fund
The Wrigley Building (investment company) from 1995 to 1999,
400 North Michigan Avenue Pacific Innovations Trust (investment
Suite 1016 company) from 1997 to 1999, Nations Annuity
Chicago, IL 60611 Trust (investment company) since December
1999, Nations Master Investment Trust
(investment company) since December 1999,
and Nations Funds Trust (investment company)
since December 1999; Director- The Hain Food
Group, Inc. (specialty food products
distributor) until December 1998, Cobra
Electronics Corporation (electronic
equipment manufacturer), Opta Food
Ingredients, Inc. (food ingredients
manufacturer), Golden Rule Insurance
Company, Nations LifeGoal Funds, Inc.
(investment company) since December 1999.
James Ermer, 57 Director/Trustee Retired Executive Vice President,
11511 Compass Point Drive Corporate Development and Planning -
Ft. Meyers, FL 33908 Land America (title insurance);
Senior Vice President, Finance - CSX
Corporation (transportation and
natural resources); Director -
National Mine Service (mining
supplies), Lawyers Title Corporation
(title insurance); Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund, Inc. and
</TABLE>
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<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Companies Directorships
---------------------- ------------- -------------
<S> <C> <C>
Nations LifeGoal Funds, Inc.; Director,
Nations Fund Portfolios, Inc. through August,
1999.
William H. Grigg, 67 Director/Trustee Chairman Emeritus since July 1997,
Duke Power Co. Chairman and Chief Executive Officer
16092A Reap Road from April 1994 to July 1997 - Duke
Albermarle, NC 28001 Power Co.; Director - The Shaw
Group, Inc.; Director and Vice
Chairman, Aegis Insurance Services,
Ltd. (a mutual insurance company in
Bermuda); Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc., Nations Fund, Inc. and
Nations LifeGoal Funds, Inc.;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Thomas F. Keller, 68 Director/Trustee R.J. Reynolds Industries Professor
Fuqua School of Business of Business Administration and
P.O. Box 90120 Former Dean - Fuqua School of
Duke University Business, Duke University; Director
Durham, NC 27708 - LADD Furniture, Inc. (furniture),
Wendy's International, Inc.
(restaurant operating and
franchising), American Business
Products, Inc. (printing services),
Dimon, Inc. (tobacco), Biogen, Inc.
(pharmaceutical biotechnology);
Trustee, The Mentor Funds, Mentor
Institutional Trust, Cash Reserve
Trust, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust;
Director, Hatteras Income
Securities, Inc., Nations Government
Income Term Trust 2003, Inc.,
Nations Government Income Term Trust
2004, Inc., Nations Balanced Target
Maturity Fund, Inc. and Nations
LifeGoal Funds, Inc.; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Carl E. Mundy, Jr., 65 Director/Trustee President and CEO - USO from May
USO World Headquarters 1996 to present; Commandant - United
Washington Navy Yard States Marine Corps from July 1991
Building 198 to July 1995; Director -
901 M Street, S.E. Shering-Plough (pharmaceuticals and
Washington, D.C. 20374-5096 health care products); General
Dynamics Corporation (defense
systems); Trustee, Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
Trust; Director, Nations Fund, Inc.
and Nations LifeGoal Funds, Inc.;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Dr. Cornelius J. Pings, 71* Director/Trustee President - Association of American
480 S. Orange Grove Blvd. Universities from February 1993 to
Pasadena, CA 91105 June 1998; Director - Farmers Group,
Inc. (insurance company), Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Master
Investment Trust, Series I from 1995
to 1999, Master Investment Trust,
Series II from 1995 to 1997, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust.; Director/Trustee and
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Companies Directorships
---------------------- ------------- -------------
<S> <C> <C>
Chairman - Pacific Horizon Funds, Inc. and
Master Investment Trust, Series I,
from inception to May 1999;
Director - Time Horizon Funds and
Pacific Innovations Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
James B. Sommers*, 61 Director President - NationsBank Trust from January
237 Cherokee Road 1992 to September 1996; Executive Vice
Charlotte, NC 28207 President - NationsBank Corporation from
January 1992 to May 1997; Chairman - Central
Piedmont Community College Foundation; Board
of Commissioners, Charlotte/ Mecklenberg
Hospital Authority; Director - Nations Fund,
Inc. and Nations LifeGoal Funds, Inc.;
Trustee, Central Piedmont Community College;
Mint Museum of Art, Nations Reserves,
Nations Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust;
Director, Nations Fund Portfolios, Inc.
through August, 1999.
A. Max Walker*, 78 President, Director and Independent Financial Consultant;
4580 Windsor Gate Court Chairman of the Board Director and Chairman of the Board -
Atlanta, GA 30342 Hatteras Income Securities, Inc.,
Nations Government Income Term Trust
2003, Inc., Nations Government
Income Term Trust 2004, Inc.,
Nations Balanced Target Maturity
Fund, Inc.; President, Director and
Chairman of the Board - Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; President, Trustee and
Chairman of the Board - Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Charles B. Walker, 61 Director Director-Ethyl Corporation (chemical
Albermarle Corporation manufacturing); Vice Chairman and
Vice Chairman and CFO Chief Financial Officer - Albemarle
330 South Fourth Street Corporation (chemical
Richmond, VA 23219 manufacturing); Director, Nations
Fund, Inc. and Nations LifeGoal
Funds, Inc.; Trustee, Nations
Reserves, Nations Fund Trust,
Nations Annuity Trust and Nations
Master Investment Trust; Director,
Nations Fund Portfolios, Inc.
through August, 1999.
Thomas S. Word, Jr.*, 62 Director Partner - McGuire, Woods, Battle &
McGuire, Woods, Battle & Boothe LLP Boothe LLP (law firm); Director -
One James Center Vaughan-Bassett Furniture Companies,
8th Floor Inc. (furniture), Nations Fund, Inc.
Richmond, VA 23219 and Nations LifeGoal Funds, Inc.;
Trustee, Nations Reserves, Nations
Fund Trust, Nations Annuity Trust
and Nations Master Investment Trust;
Director, Nations Fund Portfolios,
Inc. through August, 1999.
Richard H. Blank, Jr., 42 Secretary and Treasurer Senior Vice President since 1998,
Stephens Inc. Vice President from 1994 to 1998 and
111 Center Street Manager from 1990 to 1994 - Mutual
Little Rock, AR 72201 Fund Services, Stephens Inc.;
Secretary since September 1993 and
Treasurer since November 1998 -
Nations Fund, Inc., Nations LifeGoal
Funds, Inc., Nations Reserves,
Nations Fund Trust, Nations Annuity
Trust and Nations Master Investment
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
During Past 5 Years
Position with and Current
Name, Address, and Age the Companies Directorships
---------------------- ------------- -------------
<S> <C> <C>
Trust.; Secretary and Treasurer,
Nations Fund Portfolios, Inc.
through August, 1999.
Michael W. Nolte, 39 Assistant Secretary Assistant Secretary - Nations Fund
Stephens Inc. Trust, Nations Fund, Inc., Nations
Reserves, Nations LifeGoal Funds,
Inc., Nations Annuity Trust and
Nations Master Investment Trust;
Assistant Secretary, Nations Fund
Portfolios, Inc. through August,
1999.
Carolyn Wyse, 37 Assistant Secretary and Assistant Secretary and Assistant
Stephens Inc. Assistant Treasurer Treasurer since August 1999- Nations
Fund Trust, Nations Fund, Inc.,
Nations Reserves, Nations LifeGoal
Funds, Inc., Nations Annuity Trust,
Nations Master Investment Trust and
Nations Funds Trust.
</TABLE>
Each Director/Trustee is a board member of NFI, NFT, NR, NFST, Nations
Annuity Trust, Nations Master Investment Trust, and Nations LifeGoal Funds,
Inc., each a registered investment company that is part of the Nations Funds
Family, except William P. Carmichael, who is only a board member of NFST,
Nations Annuity Trust, Nations Master Investment Trust, and Nations LifeGoal
Funds, Inc. Richard H. Blank, Jr., Michael W. Nolte, and Carolyn Wyse also are
officers of NFI, NFT, NR, NFST, Nations Annuity Trust, Nations Master Investment
Trust, and Nations LifeGoal Funds, Inc.
Each Company, each Adviser, and Stephens have adopted a code 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 amendments to Rule 17j-1
under the 1940 Act as set forth in the August 20, 1999 Release. Each code of
ethics, among other things, prohibits each access person of the Company from
purchasing or selling securities when such person knows or should have known
that, at the time of the transaction, the security (i) was being considered for
purchase or sale by a Fund, or (ii) was being purchased or sold by a Fund. For
purposes of the code of ethics, an access person means (i) a director or officer
of a Company, (ii) any employee of a Company (or any company in a control
relationship with a Company) who, in the course of his/her regular duties,
obtains information about, or makes recommendations with respect to, the
purchase or sale of securities by a Company, and (iii) any natural person in a
control relationship with a Company who obtains information concerning
recommendations made to a Company regarding the purchase or sale of securities.
Portfolio managers and other persons who assist in the investment process are
subject to additional restrictions, including a requirement that they disgorge
to a Company any profits realized on short-term trading (i.e., the purchase/sale
or sale/purchase of securities within any 60-day period). The above restrictions
do not apply to purchases or sales of certain types of securities, including
mutual fund shares, money market instruments and certain U.S. Government
securities. To facilitate enforcement, the code of ethics generally requires
that a Company's access persons, other than its "disinterested" directors or
trustees, submit reports to a Company's designated compliance person regarding
transactions involving securities which are eligible for purchase by a Fund. The
codes of ethics for the Companies, Advisers, and Stephens are on public file
with, and are available from, the SEC.
Nations Funds Retirement Plan
Under the terms of the Nations Funds Retirement Plan for Eligible
Directors/Trustees (the "Retirement Plan"), each Director/Trustee may be
entitled to certain benefits upon retirement from the Board of
Directors/Trustees. Pursuant to the Retirement Plan, the normal retirement date
is the date on which the eligible director/trustee has attained age 65 and has
completed at least five years of continuous service with one or more of the
open-end investment companies advised by the Adviser. If a director/trustee
retires before reaching age 65, no benefits are payable. Each eligible
director/trustee is entitled to receive an annual benefit from the Funds
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of the aggregate
director's/trustee's fees payable by the Funds during the calendar year in which
the
95
<PAGE>
director's/trustee's retirement occurs multiplied by the number of years of
service (not in excess of ten years of service) completed with respect to any of
the Funds. Such benefit is payable to each eligible director/trustee in
quarterly installments for a period of no more than five years. If an eligible
director/trustee's dies after attaining age 65, the director's/trustees
surviving spouse (if any) will be entitled to receive 50% of the benefits that
would have been paid (or would have continued to have been paid) to the
director/trustee if he had not died. The Retirement Plan is unfunded. The
benefits owed to each director/trustee are unsecured and subject to the general
creditors of the Funds.
Nations Funds Deferred Compensation Plan
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Directors/Trustees (the "Deferred Compensation Plan"), each
director/trustee may elect, on an annual basis, to defer all or any portion of
the annual board fees (including the annual retainer and all attendance fees)
payable to the director/trustee for that calendar year. An application was
submitted to and approved by the SEC to permit deferring directors/trustees to
elect to tie the rate of return on fees deferred pursuant to the Deferred
Compensation Plan to one or more of certain investment portfolios of certain
Funds. Distributions from the deferring directors'/trustees deferral accounts
will be paid in cash, in generally equal quarterly installments over a period of
five years beginning on the date the deferring director's/trustees' retirement
benefits commence under the Retirement Plan. The Board of Directors/Trustees, in
its sole discretion, may accelerate or extend such payments after a
director's/trustee's termination of service. If a deferring director/trustee
dies prior to the commencement of the distribution of amounts in his deferral
account, the balance of the deferral account will be distributed to his
designated beneficiary in a lump sum as soon as practicable after the
director's/trustee's death. If a deferring director/trustee dies after the
commencement of such distribution, but prior to the complete distribution of his
deferral account, the balance of the amounts credited to his deferral account
will be distributed to his designated beneficiary over the remaining period
during which such amounts were distributable to the director/trustee. Amounts
payable under the Deferred Compensation Plan are not funded or secured in any
way and deferring directors/trustees have the status of unsecured creditors of
the Funds from which they are deferring compensation.
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<PAGE>
Director/Trustee Compensation
-----------------------------
Directors/Trustees of the Companies are compensated for their services
to the Nations Funds Family on a flat rate basis, and not on a per registered
investment company or per fund basis as outlined in the following chart.
Board Member Compensation Arrangement
<TABLE>
<CAPTION>
------------------------------------------------- -------------------------------------------------------------
<S> <C>
Board Member Annual Retainer: $65,000
Board Chairman: Additional 20% of the base annual
retainer.
Payable in quarterly
installments. Payable pro rata
for partial calendar year of
service. Allocated across
multiple registrants.
Meeting Fees: $5,000 per meeting for in-person meetings
(up to six meetings per calendar year) and $1,000 for
telephone meetings. Allocated across multiple registrants
convened at meetings.
------------------------------------------------- -------------------------------------------------------------
Audit Committee Members Chairman: Additional 10% of the base annual retainer as
Board Member.
Meeting Fees: $1,000 per meeting if not held within one
calendar day before or after regularly scheduled Board
meetings. Allocated across multiple registrants convened
at meetings.
------------------------------------------------- -------------------------------------------------------------
Nominating Committee Members Meeting Fees: $1,000 per meeting if not held within one
calendar day before or after regularly scheduled Board
meetings. Allocated across multiple registrants convened
at meetings.
------------------------------------------------- -------------------------------------------------------------
</TABLE>
The following Compensation Table provides the compensation paid by the
Companies to the Directors/Trustees for the year ended March 31, 2000. From
April 1, 1999 to June 30, 1999 each Director/Trustee received (i) an annual
retainer of $1,000 ($3,000 for the Chairman of the Board) plus $500 for each
Series of each Company, plus (ii) a fee of $1,000 for attendance at each
"in-person" meeting of each respective Board (or Committee thereof) and $500 for
attendance at each other meeting of each respective Board (or Committee
thereof). Beginning July 1, 1999 the Trustees were compensated according to the
Compensation Arrangement as outlined above.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement
Compensation Benefits Accrued Estimated Annual Total Compensation
Name of Person from as Part of Fund Benefits Upon from Registrant
Position (1) Registrant (2) Expenses Retirement Plan & Fund Complex(3)(4)
------------ -------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III $76,708 $8,850 $48,000 $88,696
Trustee/Director
James Ermer 73,241 8,850 48,000 76,391
Trustee/Director
William H. Grigg 67,559 8,850 48,000 101,391
Trustee/Director
Thomas F. Keller 71,453 8,850 51,000 106,331
Trustee/Director
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement
Compensation Benefits Accrued Estimated Annual Total Compensation
Name of Person from as Part of Fund Benefits Upon from Registrant
Position (1) Registrant (2) Expenses Retirement Plan & Fund Complex(3)(4)
------------ -------------- -------- --------------- --------------
<S> <C> <C> <C> <C>
A. Max Walker 98,230 8,850 54,000 125,000
Chairman of the Board
Charles B. Walker 84,856 8,850 48,000 92,000
Trustee/Director
Thomas S. Word 67,009 8,850 48,000 84,391
Trustee/Director
James P. Sommers 89,856 8,850 48,000 93,000
Trustee/Director
Carl E. Mundy, Jr. 85,856 8,850 48,000 92,000
Trustee/Director
Dr. Cornelius Pings 83,606 8,850 48,000 92,000
Trustee/Director
William Carmichael -- -- 2,377 4,753
Justice/Director
</TABLE>
(1) All directors/trustees receive reimbursements for expenses related
to their attendance at meetings of the Board of Directors/Trustees. Officers of
the Companies receive no direct remuneration in such capacity from the
Companies. As of the date of this SAI, the directors and officers of each
Company as a group owned less than 1% of the outstanding shares of each of the
Funds.
(2) For the twelve-month period ending March 31, 1999, each
Director/Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Companies, plus (ii) a fee
of $1,000 for attendance at each "in-person" meeting of the Board of Trustees
(or committee thereof) and $500 for attendance at each other meeting of the
Board of Directors/Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from
eleven investment companies that are deemed to be part of the Nations Funds
"fund complex," as that term is defined under Rule 14a-101 of the Securities
Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C. Walker, Sommers,
Mundy and Word receive compensation from seven investment companies deemed to be
part of the Nations Funds complex.
(4) Total compensation amounts include deferred compensation payable to
or accrued for the following Directors/Trustees: Edmund L. Benson, III $40,456;
James Ermer $4,803; William H. Grigg $80,912; Thomas F. Keller $85,588; and
Thomas S. Word $79,954.
Shareholder and Trustee Liability
NFT and NR are Massachusetts business trusts. Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the trust. However, NFT's
Declaration of Trust and NR's Agreement and Declaration of Trust provide that
shareholders shall not be subject to any personal liability for the acts or
obligations of NFT or NR, respectively, and that every note, bond, contract,
order, or other undertaking made by NFT and NR, respectively, shall contain a
provision to the effect that the shareholders are not personally liable
thereunder. NFT's Declaration of Trust and NR's Agreement and Declaration of
Trust also provide for indemnification out of the trust property of any
shareholder held personally liable solely by reason of his being or having been
a shareholder and not because of his acts or omissions or some other reason.
NFT's Declaration of Trust and NR's Agreement and Declaration of Trust also
provide that NFT and NR, respectively, shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of NFT or NR
and shall satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which NFT or NR themselves would be unable to meet its
obligations.
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<PAGE>
NFST's Declaration of Trust provides that shareholders shall not be
subject to any personal liability for the acts or obligations of the Trust, and
also provides for indemnification out of the trust property of any shareholder
held personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or some other reason.
NFT's and NFST's Declarations of Trust and NR's Agreement and
Declaration of Trust state further that no Trustee, officer, or agent of NFT,
NFST, or NR, respectively, shall be personally liable for or on account of any
contract, debt, tort, claim, damage, judgment, or decree arising out of or
connected with the administration or preservation of the trust estate or the
conduct of any business of NFT, NFST, or NR; nor shall any Trustee be personally
liable to any person for any action or failure to act except by reason of his
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his duties as Trustee. NFT's and NFST's Declarations of Trust and NR's Agreement
and Declaration of Trust also provide that all persons having any claim against
the Trustees or NFT, NFST, or NR shall look solely to the trust property for
payment.
With the exceptions stated, NFT's and NFST's Declarations of Trust and
NR's Agreement and Declaration of Trust provides that a Trustee is entitled to
be indemnified against all liabilities and expenses reasonably incurred by him
in connection with the defense or disposition of any proceeding in which he may
be involved or with which he may be threatened by reason of his being or having
been a Trustee, and that the Trustees have the power, but not the duty, to
indemnify officers and employees of NFT, NFST, or NR unless any such person
would not be entitled to indemnification had he or she been a Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
---------------------------------------------
TRANSFER AGENCY, OTHER SERVICE PROVIDERS, SHAREHOLDER SERVICING AND
-------------------------------------------------------------------
DISTRIBUTION AGREEMENTS
-----------------------
Investment Adviser and Sub-Advisers
Bank of America and its Investment Adviser and Sub-Adviser Affiliates
---------------------------------------------------------------------
BAAI is the investment adviser to the Funds, except the Feeder Funds.
BAAI is also the investment adviser to the Master Portfolios.
Chicago Equity is co-investment sub-adviser with BACAP to the Asset
Allocation Fund. Marsico Capital is investment sub-adviser to the Marsico
Focused Equities Master Portfolio, Marsico Growth & Income Master Portfolio,
Marsico 21st Century Master Portfolio, and Marsico International Opportunities
Master Portfolio. Gartmore, INVESCO and Putnam are the co-investment
sub-advisers to the International Equity Master Portfolio. BACAP is the
investment sub-adviser to all other Funds except the Feeder Funds.
BAAI also serves as the investment adviser to the portfolios of Nations
Annuity Trust and Nations LifeGoal Funds, Inc., each a registered investment
company that is part of the Nations Funds Family. In addition, BAAI serves as
the investment adviser to Hatteras Income Securities, Inc., Nations Government
Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.
and Nations Balanced Target Maturity Fund, Inc., each a closed-end diversified
management investment company traded on the New York Stock Exchange. BACAP also
serves as the sub-investment adviser to Hatteras Income Securities, Inc.,
Nations Government Income Term Trust 2003, Inc., Nations Government Income Term
Trust 2004, Inc., and Nations Balanced Target Maturity Fund, Inc.
BAAI and BACAP are each wholly owned subsidiaries of Bank of America,
which in turn is a wholly owned banking subsidiary of Bank of America
Corporation, a bank holding company organized as a Delaware corporation.
The respective principal offices of BAAI and BACAP are located at One
Bank of America Plaza, Charlotte, N.C. 28255.
Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, CO
80202. Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico
Capital. Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18
years of experience as a securities analyst/portfolio manager. Bank of America
owns 50% of Marsico Capital. On June 28, 2000, Bank of America announced its
intention to purchase the remaining 50% equity interest in Marsico Capital.
Under applicable law, the change in ownership that would result from this
purchase would terminate Marsico Capital's investment sub-advisory agreements
with the Funds. Shareholders of the affected Funds must approve new investment
sub-advisory agreements in order for Marsico Capital to continue to serve as
99
<PAGE>
investment sub-adviser to the Funds. It is anticipated that special meetings of
shareholders would be called in the spring of 2001 to seek these approvals.
Since 1874, Bank of America and its predecessors have been managing
money for foundations, universities, corporations, institutions and individuals.
Today, Bank of America affiliates collectively manage in excess of $100 billion,
including the more than $90 billion in mutual fund assets. It is a company
dedicated to a goal of providing responsible investment management and superior
service. Bank of America is recognized for its sound investment approaches,
which place it among the nation's foremost financial institutions. Bank of
America and its affiliates organization makes available a wide range of
financial services to its over 6 million customers through over 1700 banking and
investment centers.
Sub-Advisers Unaffiliated with BAAI
-----------------------------------
Brandes is the investment sub-adviser to the International Value Master
Portfolio. Brandes Investment Partners, Inc. owns a controlling interest in
Brandes Investment Partners, L.P. and serves as its General Partner. Charles
Brandes is the controlling shareholder of Brandes Investment Partners, Inc. The
principal offices of Brandes are located at 12750 High Bluff Drive, San Diego,
CA 92130.
MacKay Shields is the investment sub-adviser to the High Yield Master
Portfolio. MacKay Shields is located at 9 West 57th Street, New York, NY 10019.
Chicago Equity Partners Corporation was established in 1998 as a wholly
owned subsidiary of Bank of America and was the successor to the Bank of America
Institutional Equity Group. On April 30, 2000, Chicago Equity Partners
Corporation merged into Chicago Equity Partners, LLC, a limited liability
company formed in the state of Delaware. Chicago Equity is an investment adviser
registered under the Investment Advisers Act of 1940, as amended. It serves as
the investment sub-adviser for the Blue Chip Master Portfolio and the equity
portion of the Asset Allocation Fund. The principal source of Chicago Equity's
income is professional fees received from the management of client portfolios.
Chicago Equity manages the assets of fiduciary and other institutional accounts.
Chicago Equity is located at 231 South LaSalle Street, Chicago, Illinois 60697.
Gartmore is registered as an investment adviser under the Investment
Advisers Act of 1940, with principal offices at Gartmore House, 8 Fenchurch
Place, London EC3M 4PH England. It currently serves as investment sub-adviser to
the Emerging Markets Fund, and International Growth Fund and as co-investment
sub-adviser to the International Equity Master Portfolio. Gartmore's former
indirect parent was Bank of America Corporation. As of May 31, 2000, Gartmore's
indirect parent became Nationwide. Nationwide is an Ohio mutual insurance
company with its principal executive offices located at One Nationwide Plaza,
Columbus, Ohio 43215. Nationwide is the controlling company of the Nationwide
Insurance Enterprise, an insurance and financial services organization (the
"Enterprise"). In 1997, Nationwide had $5.1 billion of net written premium.
Nationwide is a party to the Nationwide Intercompany Pooling Agreement (the
"Nationwide Pooling Agreement") with 12 other property and casualty insurance
companies within the Enterprise which provides that Nationwide shares in a
specified percentage of the combined underwriting results and dividends to
policyholders incurred by such companies (the "Nationwide Pool"). The insurance
companies comprising the Nationwide Pool were the sixth largest property and
casualty insurance group and were the fourth largest automobile insurance group
in the United States, with approximately $8.4 billion in total net written
premium at December 31, 1997 and approximately a 3.3% market share. Nationwide
was originally chartered in the State of Ohio in 1925 as the Farm Bureau Mutual
Automobile Insurance Company and it adopted its present name in 1955.
INVESCO Global Asset Management (N.A.), Inc., with principal offices
located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309, was founded in
1997 as a division of INVESCO Global a publicly traded investment management
firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC,
a publicly traded UK financial holding company also located in London, England
that, through its subsidiaries, engages in international investment management.
The "management team" responsible for the day-to-day investment decisions for
INVESCO's managed portion of the assets of the International Equity Master
Portfolio are: John D. Rogers, CFA; W. Linsay Davidson; Michele T. Garren, CFA;
Erik B. Granade, CFA; Kent A. Stark; and Ingrid Baker, CFA.
Putnam Investment Management, Inc., with principal offices located at
One Post Office Square, Boston, Massachusetts 02109, is a wholly owned
subsidiary of Putnam Investments, Inc., an investment management firm founded in
1937 which, except for shares held by employees is owned by Marsh & McLennan
Companies, a publicly traded professional services firm that engages, through
its subsidiaries in the business of insurance brokerage,
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<PAGE>
investment management and consulting. The "management team" responsible for the
day-to-day investment decisions for Putnam's managed portion of the assets of
the International Equity Master Portfolio are: Omid Kamshad, CFA; Mark D.
Pollard, Justin M. Scott and Paul C. Warren
Investment Advisory and Sub-Advisory Agreements
-----------------------------------------------
Pursuant to the terms of the Companies' Investment Advisory Agreements
and Sub-Advisory Agreements (at times, the "Advisory Agreements") with BAAI,
BACAP, Gartmore, Chicago Equity, Brandes, MacKay Shields INVESCO, Putnam and/or
Marsico Capital, and subject at all times to the control of the respective
Companies' Boards of Directors/Trustees and conformity with the stated policies
of each Company, BAAI, BACAP, Chicago Equity, Gartmore, Brandes, MacKay Shields,
INVESCO, Putnam and/or Marsico Capital each selects and manages the investments
of the Funds. Each such advisory entity obtains and evaluates economic,
statistical and financial information to formulate and implement investment
policies for the Funds that they advise.
The Advisory Agreements each provide that in the absence of willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties thereunder on the part of an Adviser, respectively, or any of its
respective officers, directors, employees or agents, such Adviser shall not be
subject to liability to a Company or to any shareholder of the Company for any
act or omission in the course of, or connected with, rendering services under
thereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
Each Advisory Agreement became effective with respect to a Fund after
approved by the Board of a Company, and continues from year to year, provided
that such continuation of the Agreement is specifically approved at least
annually by (a) (i) a Company's Board of Directors/Trustees or (ii) the vote of
"a majority of the outstanding voting securities" of a Fund (as defined in
Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority of
the Company's Directors/Trustees who are not parties to such Agreement or
"interested persons" (as defined in the 1940 Act) of a party to such Agreement
(other than as Directors of the Company), by votes cast in person at a meeting
specifically called for such purpose. The respective Advisory Agreement
terminates automatically in the event of its assignment, and is terminable with
respect to a Fund at any time without penalty by a Company (by vote of the Board
of Directors/Trustees or by vote of a majority of the outstanding voting
securities of the Fund) or by BAAI on 60 days' written notice.
The Funds, in any advertisement or sales literature, may advertise the
names, experience and/or qualifications of the portfolio manager(s) of any Fund,
or if a Fund is managed by team or committee, such Fund may advertise the names,
experience and/or qualifications of any such team or committee member.
The Adviser may waive a portion of its fees; however, any such waiver
may be discontinued at any time. As discussed below," an Adviser will be
required to reduce its fees charged to the Funds, in direct proportion to the
fees payable by such Funds to an Adviser and the Administrator, if the expenses
of the Funds exceed the applicable expense limitation of any state in which the
Funds' shares are registered or qualified for sale.
BAAI also may pay amounts from its own assets to Stephens or to selling
or servicing agents for services they provide. The investment advisory
agreements and the investment sub-advisory agreements for the Master Portfolios
are generally similar to the Advisory Agreements.
Subject to reduction in accordance with the expense limitation
provisions which may be imposed by states in which the Funds' shares are
qualified for sale, BAAI received fees from the Funds for its services as
outlined in the following chart, which states the net advisory fees paid to
BAAI, the advisory fees waived and expense reimbursements where applicable for
the fiscal year ended March 31, 2000. Because all of the Funds of NFST are new
series, they have not yet completed a single fiscal year. Accordingly, advisory
fees and sub-advisory fees paid to their adviser and sub-advisers, respectively,
are not included below.
101
<PAGE>
ADVISORY FEES
-------------
<TABLE>
<CAPTION>
Net Amount Reimbursed
Amount Paid Waived by Adviser
----------- ------ ----------
<S> <C> <C> <C>
Prime Fund 10,473,000 1,545,853 -
Treasury Fund 3,690,808 554,688 -
Equity Income Fund 3,649,120 3,282 -
Government Securities Fund 824,307 225,795 -
International Equity Fund 3,330,623 35,663 -
International Growth Fund 1,428,616 30,467 -
International Value Fund 1,160,122 142,388 -
Small Company Fund 4,886,606 554,663 -
US Government Bond Fund 374,143 132,350 -
Government Money Market Fund 639,946 591,223 -
Tax Exempt Fund 4,157,168 2,375,631 -
Value Fund 13,096,565 37,291 -
Capital Growth Fund 5,725,787 - -
Aggressive Growth Fund 3,348,866 447 -
Large Cap Index Fund 578,210 3,748,074 -
MidCap Growth Fund 1,731,609 - -
Managed Index Fund 1,382,193 1,559,621 -
Small Cap Index Fund 302,157 537,268 -
Cash Reserves 41,917,028 - -
Money Market Reserves 3,492,118 1,626,671 -
Treasury Reserves 9,455,978 - -
Government Reserves 2,507,819 166,533 -
Municipal Reserves 1,809,661 223,731 -
California Tax-Exempt Reserves* 2,198,602 37,697 -
Asset Allocation Fund* 1,920,669 246,996 -
Convertible Securities Fund* 2,002,135 - -
California Municipal Fund* 561,951 279,851 -
Intermediate Bond Fund*(a) - - -
Blue Chip Fund*(a) - - -
Marsico Focused Equities Fund 3,616,135 - -
Marsico Growth & Income Fund 1,027,192 - -
Balanced Assets Fund 664,736 171,882 -
Short-Intermediate Government Fund 1,919,241 113,613 -
Short-Term Income Fund 893,075 525,771 -
Bond Fund 7,426,720 217,923 -
Municipal Income Fund 2,009,025 1,263,949 -
Short-Term Municipal Income Fund (26,406) - 410,899
Intermediate Municipal Bond Fund 2,041,136 1,632,783 -
Florida Intermediate Municipal Bond 449,122 527,742 -
Fund
Georgia Intermediate Municipal Bond 228,313 392,163 -
Fund
Maryland Intermediate Municipal Bond 349,789 475,432 -
Fund
North Carolina Intermediate Municipal 345,899 476,833 -
Bond Fund
South Carolina Intermediate Municipal 491,652 559,670 -
Bond Fund
Tennessee Intermediate Municipal Bond (3,302) - 218,100
Fund
Texas Intermediate Municipal Bond Fund 805,727 723,266 -
Virginia Intermediate Municipal Bond 578,309 603,026 -
Fund
Florida Municipal Bond Fund 396,783 362,065 -
Georgia Municipal Bond Fund (58,899) - 180,511
Maryland Municipal Bond Fund (32,320) - 215,423
North Carolina Municipal Bond Fund 758 212,249 -
South Carolina Municipal Bond Fund (47,207) - 205,454
Tennessee Municipal Bond Fund (106,990) - 161,632
Texas Municipal Bond Fund (91,993) - 169,070
Virginia Municipal Bond Fund (58,933) - 199,694
Emerging Markets Fund 132,817 222,899 -
Strategic Growth Fund 3,061,314 - -
Strategic Income Fund 837,734 455,939 -
--------------- --------------- ----------------
</TABLE>
* The amounts shown for this Fund represent fees for the fiscal period from May
16, 1999 to March 31, 2000
(a) There are no amounts shown for this fund being that all of the advisory fees
are paid at the Master.
BAAI received fees from the Funds for its services as outlined in the
following chart, which states the net advisory fees paid to BAAI, the advisory
fees waived and expense reimbursements where applicable for the fiscal year
ended March 31, 1999.
102
<PAGE>
<TABLE>
<CAPTION>
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
<S> <C> <C> <C>
Prime Fund $12,225,631 $1,340,369 $0.00
Treasury Fund 4,286,160 1,248,840 0.00
Equity Income Fund 5,845,269 42,731 0.00
Government Securities Fund 837,334 180,666 0.00
International Equity Fund 7,491,086 0.00 0.00
International Growth Fund 2,317,553 170,447 0.00
International Value Fund 1,048,847 116,153 0.00
Small Company Fund 2,742,154 1,024,846 0.00
U.S. Government Bond Fund 598,363 505,029 0.00
Government Money Market Fund 613,516 1,017,484 0.00
Tax Exempt Fund 4,507,216 6,378,784 0.00
Value Fund 17,721,908 0.00 0.00
Capital Growth Fund 6,256,638 0.00 0.00
Aggressive Growth Fund 3,580,240 0.00 0.00
LargeCap Index Fund 1,077,496 2,753,504 0.00
MidCap Growth Fund 2,082,133 0.00 0.00
Managed Index Fund 1,665,990 1,375,010 0.00
SmallCap Index Fund 397,736 637,832 0.00
Marsico Growth & Income Fund 687,321 0.00 0.00
Marsico Focused Equities Fund 1,951,845 0.00 0.00
Balanced Assets Fund 1,206,155 0.00 0.00
Short-Intermediate Gov't Fund 2,761,572 1,380,428 0.00
Short-Term Income Fund 1,290,670 1,290,330 0.00
Strategic Income Fund 1,914,951 383,049 0.00
Bond Fund 9,334,703 1,867,297 0.00
Municipal Income Fund 2,651,245 1,131,755 0.00
Short-Term Municipal Income Fund 179,149 479,111 0.00
Intermediate Municipal Bond Fund 3,120,856 1,454,144 0.00
Florida Intermediate Municipal Bond Fund 750,898 419,102 0.00
Georgia Intermediate Municipal Bond Fund 446,861 334,883 0.00
Maryland Intermediate Municipal Bond Fund 512,685 397,315 0.00
North Carolina Intermediate Municipal Bond Fund 626,613 379,387 0.00
South Carolina Intermediate Municipal Bond Fund 900,188 451,812 0.00
Tennessee Intermediate Municipal Bond Fund 124,633 210,153 0.00
Texas Intermediate Municipal Bond Fund 1,350,723 620,277 0.00
Virginia Intermediate Municipal Bond Fund 849,701 485,299 0.00
Florida Municipal Bond Fund 552,208 340,792 0.00
Georgia Municipal Bond Fund 50,789 185,961 0.00
Maryland Municipal Bond Fund 76,086 167,416 0.00
North Carolina Municipal Bond Fund 113,404 173,856 0.00
South Carolina Municipal Bond Fund 59,273 179,721 0.00
Tennessee Municipal Bond Fund 9,144 145,172 0.00
Texas Municipal Bond Fund 32,331 139,869 0.00
Virginia Municipal Bond Fund 74,830 177,686 0.00
Emerging Markets Fund 324,702 82,712 0.00
Strategic Growth Fund 701,840 0.00 0.00
</TABLE>
BAAI received fees from the Funds for its services as outlined in the
following chart, which states the net advisory fees paid to BAAI, the advisory
fees waived and expense reimbursements where applicable for the fiscal year
ended March 31, 1998.
<TABLE>
<CAPTION>
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
<S> <C> <C> <C>
Prime Fund $9,639,804 $1,588,170 $0.00
Treasury Fund 5,843,938 843,672 0.00
Equity Income Fund 4,731,858 0.00 0.00
Government Securities Fund 606,485 160,648 0.00
International Equity Fund 9,260,334 0.00 0.00
International Growth Fund 4,491,759 145,205 0.00
International Value Fund 326,210 3,902 0.00
Small Company Fund 959,096 419,890 0.00
U.S. Government Bond Fund 483,931 385,271 0.00
Government Money Market Fund 468,312 954,231 0.00
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Net Amount Paid Amount Waived Reimbursed by Adviser
--------------- ------------- ---------------------
<S> <C> <C> <C>
Tax Exempt Fund 3,482,525 5,239,935 0.00
Value Fund 15,618,802 49,168 0.00
Capital Growth Fund 5,717,424 0.00 0.00
Aggressive Growth Fund 1,236,280 0.00 0.00
LargeCap Index Fund 1,302,110 2,088,839 0.00
MidCap Growth Fund 2,836,719 0.00 0.00
Managed Index Fund 360,994 449,019 0.00
SmallCap Index Fund 0.00 419,108 0.00
Marsico Growth & Income Fund 0.00 10,919 0.00
Marsico Focused Equities Fund 27,032 0.00 0.00
Balanced Assets Fund 1,493,286 0.00 0.00
Short-Intermediate Gov't Fund 2,708,669 1,354,334 0.00
Short-Term Income Fund 1,006,049 1,006,049 0.00
Strategic Income Fund 1,440,010 288,002 0.00
Bond Fund 7,389,298 1,760,101 0.00
Municipal Income Fund 1,495,049 865,120 0.00
Short-Term Municipal Income Fund 143,891 357,577 0.00
Intermediate Municipal Bond Fund 1,814,264 1,420,175 0.00
Florida Intermediate Municipal Bond Fund 414,266 371,186 0.00
Georgia Intermediate Municipal Bond Fund 305,490 267,367 0.00
Maryland Intermediate Municipal Bond Fund 216,531 251,773 0.00
North Carolina Intermediate Municipal Bond Fund 350,910 325,600 0.00
South Carolina Intermediate Municipal Bond Fund 532,494 471,252 0.00
Tennessee Intermediate Municipal Bond Fund 67,179 121,971 0.00
Texas Intermediate Municipal Bond Fund 688,008 601,927 0.00
Virginia Intermediate Municipal Bond Fund 631,227 484,093 0.00
Florida Municipal Bond Fund 144,492 123,106 0.00
Georgia Municipal Bond Fund 33,480 66,122 0.00
Maryland Municipal Bond Fund 25,999 82,546 0.00
North Carolina Municipal Bond Fund 83,208 94,452 0.00
South Carolina Municipal Bond Fund 42,805 72,257 0.00
Tennessee Municipal Bond Fund 1,873 57,822 0.00
Texas Municipal Bond Fund 26,062 72,988 0.00
Virginia Municipal Bond Fund 56,750 81,176 0.00
Emerging Markets Fund 988,113 0.00 0.00
</TABLE>
For the 11-month fiscal period from May 1, 1998 to March 31, 1999 (the
Trust changed its fiscal year end from April 30th to March 31st), Cash Reserves,
Treasury Reserves, Government Reserves and Municipal Reserves paid Advisory fees
to BAAI as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived BAAI
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
Cash Reserves $10,651,186 $9,394,814 $0
Treasury Reserves 2,472,643 3,183,357 0
Government Reserves 757,681 982,319 0
Municipal Reserves 343,134 619,866 0
</TABLE>
104
<PAGE>
For the fiscal year from May 1, 1997 to April 30, 1998 Cash Reserves,
Treasury Reserves, Government Reserves and Municipal Reserves paid Advisory fees
to BAAI as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived BAAI
<S> <C> <C> <C>
Cash Reserves $5,755,496 $5,510,631 $0
Treasury Reserves 1,317,229 1,539,732 0
Government Reserves 660,333 757,134 0
Municipal Reserves 306,303 429,881 0
</TABLE>
Barnett Capital Advisors, Inc. ("Barnett") assumed the responsibilities
as investment adviser for the Emerald Prime Advantage Institutional Fund (the
predecessor portfolio to Money Market Reserves) on June 29, 1996 and assumed
sole responsibility for the Fund under a new advisory agreement on December 1,
1996.
For the fiscal period from May 16, 1998 to March 31, 1999 Money Market
Reserves paid Advisory fees to BAAI as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived BAAI
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
Money Market Reserves $672,666 $1,448,334 $0
</TABLE>
For the fiscal period from December 1, 1997 to May 16, 1998 the Emerald
Prime Advantage Institutional Fund paid Advisory fees to Barnett as follows:
<TABLE>
<CAPTION>
Net Net Fees Reimb. by
Fees Paid Fees Waived Barnett
<S> <C> <C> <C>
Emerald Prime Advantage Institutional Fund $44,692 $19,626 $0
</TABLE>
Prior to May 15, 1999, Bank of America National Trust and Savings
Association ("Bank of America Adviser") was the investment adviser to the
Pacific Horizon California Tax-Exempt Money Market Fund (the predecessor to
California Tax-Exempt Reserves), the Pacific Horizon Asset Allocation Fund (the
predecessor to Asset Allocation Fund), Pacific Horizon Capital Income Fund (the
predecessor to the Convertible Securities Fund) and the Pacific Horizon
California Municipal Bond Fund (the predecessor to the California Municipal Bond
Fund). Prior to May 15, 1999, Bank of America Adviser was also the investment
adviser to the Pacific Horizon Investment Grade Bond Master Portfolio (the
predecessor to The Intermediate Bond Master Portfolio) and the Pacific Horizon
Blue Chip Master Portfolio (the predecessor to The Blue Chip Master Portfolio).
For the fiscal period from March 1, 1999 to May 14, 1999, the Pacific
Horizon California Tax-Exempt Money Market Fund, the Pacific Horizon Asset
Allocation Fund, the Pacific Horizon Capital Income Fund, the Pacific Horizon
California Municipal Bond Fund, the Pacific Horizon Investment Grade Bond Master
Portfolio, the Pacific Horizon Blue Chip Master Portfolio, and the Pacific
Horizon Blue Chip (Feeder) Fund paid Advisory fees to Bank of America Adviser as
follows:
105
<PAGE>
<TABLE>
<CAPTION>
Fees Reimb. By Bank of
Net Fees Paid Net Fees Waived America Adviser
------------- --------------- ---------------
<S> <C> <C> <C>
Pacific Horizon California
Tax-Exempt Money Market Fund (60,767) - 384,798
Pacific Horizon Asset Allocation 132,667 111,809 -
Fund
Pacific Horizon Capital Income Fund 317,629 17,346 -
Pacific Horizon California
Municipal Bond Fund 119,243 13,794 -
Pacific Horizon Investment Grade
Bond Master Portfolio* - - -
Pacific Horizon Blue Chip Master
Portfolio* - - -
Pacific Horizon Blue Chip (Feeder)
Fund* - - -
</TABLE>
*Advisory Fees Paid at the Master level.
For the fiscal year from March 1, 1998 to February 28, 1999, the
Pacific Horizon California Tax-Exempt Money Market Fund, the Pacific Horizon
Asset Allocation Fund, the Pacific Horizon Capital Income Fund, the Pacific
Horizon California Municipal Bond Fund, the Pacific Horizon Investment Grade
Bond Master Portfolio, the Pacific Horizon Blue Chip Master Portfolio, and the
Pacific Horizon Blue Chip (Feeder) Fund paid Advisory fees to Bank of America
Adviser as follows:
<TABLE>
<CAPTION>
Fees Reimb. by
Net Net Bank of America
Fees Paid Fees Waived Adviser
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
Pacific Horizon California Tax-Exempt Money $1,548,799 $0 $0
Market Fund
Pacific Horizon Asset Allocation Fund 1,089,007 0 0
Pacific Horizon Capital Income Fund 1,740,699 0 0
Pacific Horizon California Municipal Bond 687,688 0 0
Fund
Pacific Horizon Investment Grade Bond Master 295,046 133,952 0
Portfolio
Pacific Horizon Blue Chip Master Portfolio 4,147,169 0 0
Pacific Horizon Blue Chip (Feeder) Fund N/A N/A 38,230
</TABLE>
For the fiscal year from March 1, 1997 to February 28, 1998, the
Pacific Horizon California Tax-Exempt Money Market Fund, the Pacific Horizon
Asset Allocation Fund (Pacific Horizon Asset Allocation Master Portfolio prior
to June 23, 1997), the Pacific Horizon Capital Income Fund, the Pacific Horizon
California Municipal Bond Fund, the Pacific Horizon Investment Grade Bond Master
Portfolio and the Pacific Horizon Blue Chip Master Portfolio paid Advisory fees
to Bank of America Adviser as follows:
106
<PAGE>
<TABLE>
<CAPTION>
Fees Reimb. by
Net Net Bank of America
Fees Paid Fees Waived Adviser
<S> <C> <C> <C>
Pacific Horizon California Tax-Exempt Money $1,149,877 $0 $0
Market Fund
Pacific Horizon Asset Allocation Fund 0 650,191 0
Pacific Horizon Capital Income Fund 1,637,658 0 0
Pacific Horizon California Municipal Bond 828,272 194,717 0
Fund
Pacific Horizon Investment Grade Bond Master 217,339 248,915 0
Portfolio
Pacific Horizon Blue Chip Master Portfolio 3,099,522 262,519 0
</TABLE>
The table below states the net sub-advisory fees paid to Gartmore for
the fiscal period indicated. No fees were waived or reimbursed by the Adviser
during those periods.
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/00 3/31/99 3/31/98
<S> <C> <C> <C>
International Equity Fund $1,179,182 $5,826,400 $9,260,333.98
International Growth Fund 1,205,459 1,935,481 4,331,994.06
Emerging Markets Fund 102,346 288,796 988,113.20
</TABLE>
The table below states the net sub-advisory fees paid to INVESCO for
the fiscal period indicated. No fees were waived or reimbursed by the Advisor
during those periods.
Period Ending 3/31/00
---------------------
International Equity $489,476
The table below states the net sub-advisory fees paid to Putnam for the
fiscal period indicated. No fees were waived or reimbursed by the Advisor during
those periods.
Period Ending 3/31/00
---------------------
International Equity $490,887
The table below states the net sub-advisory fees paid to Chicago Equity
for the fiscal period indicated. No fees were waived or reimbursed by the
Advisor during those periods.
Period Ending 3/31/00
---------------------
Blue Chip Fund* $
Asset Allocation Fund $820,193
-----------------------------------
*These fees are paid at the Master level.
107
<PAGE>
The table below states the net sub-advisory fees paid to Marsico for
the fiscal year indicated. No fees were waived or reimbursed by the Adviser
during those periods.
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/00 3/31/999 3/31/98
<S> <C> <C> <C>
Marsico Focused Equities Fund $2,023,082 $1,033,332 $14,311
Marsico Growth & Income Fund 574,549 363,877 5,780
</TABLE>
The table below states the net sub-advisory fees paid to Brandes for
the fiscal period indicated. No fees were waived or reimbursed by the Adviser
during these periods.
<TABLE>
<CAPTION>
Period Ending Period Ending Period Ending
3/31/00 3/31/99 5/15/98
<S> <C> <C> <C>
International Value Fund $613,897 $570,822 $177,516.52
</TABLE>
Co-Administrators and Sub-Administrator
Stephens Inc. and BAAI (the "Co-Administrators") serve as
co-administrators of each Company.
The Co-Administrators serve under co-administration agreements
("Co-Administration Agreements"), which were approved by the Boards of
Directors/Trustees on November 5-6, 1998 for NFI, NFT, and NR and on December 9,
1999 for NFST. The Co-Administrators receive, as compensation for their services
rendered under the Co-Administration Agreements, administration fees, computed
daily and paid monthly, at the annual rate of: 0.10% of the money market Funds;
0.22% of the fixed income and international Funds; and 0.23% of the domestic
equity Funds of the average daily net assets of each such Fund. BAAI also may
pay amounts from its own assets to Stephens or to selling or servicing agents
for services they provide.
Pursuant to the Co-Administration Agreement, Stephens has agreed to,
among other things, (i) maintain office facilities for the Funds, (ii) furnish
statistical and research data, data processing, clerical, and internal executive
and administrative services to each Company, (iii) furnish corporate secretarial
services to each Company, including coordinating the preparation and
distribution of materials for Board of Directors/Trustees meetings, (iv)
coordinate the provision of legal advice to each Company with respect to
regulatory matters, (v) coordinate the preparation of reports to each Company's
shareholders and the SEC, including annual and semi-annual reports, (vi)
coordinating the provision of services to each Company by the Transfer Agent,
Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects
of each Company's operations. Stephens bears all expenses incurred in connection
with the performance of its services.
Also, pursuant to the Co-Administration Agreement, BAAI has agreed to,
among other things, (i) provide accounting and bookkeeping services for the
Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate
information required for the Company's reports to shareholders and the SEC, (iv)
prepare and file each Company's federal and state tax returns, (v) perform
monthly compliance testing for the Company, and (vi) prepare and furnish the
Company monthly broker security transaction summaries and transaction listings
and performance information. BAAI bears all expenses incurred in connection with
the performance of its services.
The Co-Administration Agreement may be terminated by a vote of a
majority of the respective Board of Directors/Trustees, by Stephens or by BAAI,
respectively, on 60 days' written notice without penalty. The Co-Administration
Agreements are not assignable without the written consent of the other party.
Furthermore, the Co-Administration Agreements provide that Stephens and BAAI
shall not be liable to the Funds or to their shareholders except in the case of
Stephens' or BAAI's, willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
BNY serves as sub-administrator for the Funds pursuant to
sub-administration agreements. Pursuant to their terms, BNY assists Stephens and
BAAI in supervising, coordinating and monitoring various aspects of the Funds'
administrative operations. For providing such services, BNY is entitled to
receive a monthly fee from Stephens and BAAI based on an annual rate of the
Funds' average daily net assets. Because all of the Funds of NFST are new
series, they have not yet completed a single fiscal year. Accordingly,
co-administration fees and sub-
108
<PAGE>
administration fees paid are not included below.
The table set forth below states the net Co-Administration fees paid to
BAAI and waived for the fiscal period ended March 31, 2000.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid to BAAI Waiver per expense ratio analysis
----------------- ---------------------------------
<S> <C> <C>
Prime Fund 593,138 -
Treasury Fund 209,505 -
Equity Income Fund 620,120 -
Govt Securities Fund 205,715 -
Intl Equity Fund 588,271 -
Intl Growth Fund 170,778 -
Intl Value Fund 294,060 -
Small Company Fund 615,968 -
US Govt Bond Fund 93,265 -
Govt Money Market Fund 47,442 -
Tax Exempt Fund 282,587 -
Value Fund 1,883,413 -
Capital Growth Fund 842,870 -
Aggressive Growth Fund 487,245 -
LargeCap Index Fund 1,031,332 -
MidCap Growth Fund 259,259 -
Managed Index Fund 688,841 -
SmallCap Index Fund 198,238 -
Cash Reserves 1,113,257 22,294,339
Money Market Reserves 17,089 2,586,682
Treasury Reserves 227,937 4,791,723
Government Reserves 0 1,348,493
Municipal Reserves (199) 1,045,827
California Tax-Exempt Reserves* (49,171) 1,195,892
Asset Allocation Fund* 360,382 -
Convertible Securities Fund* 331,021 -
California Municipal Bond Fund* 180,645 -
Intermediate Bond Fund* 44,794 -
Blue Chip Fund* 371,641 -
Marsico Growth & Income Fund 181,239 -
Marsico Focused Equities Fund 647,723 -
Balanced Assets Fund 120,133 -
Short-Intermediate Govt Fund 577,009 -
Short-Term Income Fund 409,185 -
Strategic Income Fund 227,764 -
Bond Fund 1,742,529 -
Municipal Income Fund 616,848 -
Short-Term Municipal Income Fund 115,124 -
Intermediate Municipal Bond Fund 860,494 -
Fl Int Municipal Bond Fund 228,065 -
GA Int Municipal Bond Fund 145,010 -
MD Intl Municipal Bond Fund 193,877 -
NC Int Municipal Bond Fund 192,601 -
SC Int Municipal Bond Fund 245,858 -
TN Int Municipal Bond Fund 50,260 -
TX Int Municipal Bond Fund 356,530 -
VA Int Municipal Bond Fund 278,270 -
FL Municipal Bond Fund 142,783 -
GA Municipal Bond Fund 23,126 -
MD Municipal Bond Fund 34,857 -
NC Municipal Bond Fund 40,396 -
SC Municipal Bond Fund 31,020 -
TN Municipal Bond Fund 10,322 -
TX Municipal Bond Fund 14,400 -
VA Municipal Bond Fund 26,738 -
Emerging Markets Fund 35,672 -
Strategic Growth Fund 475,051 -
</TABLE>
109
<PAGE>
---------------------------------
*The amounts shown for this Fund represent fees for the Fiscal period
from May 16, 1999 to March 31, 2000.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid to Stephens Waiver per expense ratio analysis
--------------------- ---------------------------------
<S> <C> <C>
Prime Fund 3,529,994 1,195,641
Treasury Fund 1,215,399 422,307
Equity Income Fund 391,816 -
Govt Securities Fund 124,194 -
Intl Equity Fund (42,082) 179,777
Intl Growth Fund 71,813 -
Intl Value Fund 169,114 -
Small Company Fund 360,306 -
US Govt Bond Fund 59,165 -
Govt Money Market Fund 274,853 95,508
Tax Exempt Fund 1,384,832 481,192
Value Fund 1,490,058 -
Capital Growth Fund 518,471 -
Aggressive Growth Fund 303,701 -
LargeCap Index Fund 641,390 -
MidCap Growth Fund 156,640 -
Managed Index Fund 427,658 -
SmallCap Index Fund 122,199 -
Cash Reserves 2,010,983 -
Money Market Reserves 241,385 -
Treasury Reserves 448,018 -
Government Reserves 126,655 -
Municipal Reserves 98,213 -
California Tax-Exempt Reserves* 109,923 -
Asset Allocation Fund* 196,260 -
Convertible Securities Fund* 179,186 -
California Municipal Bond Fund* 65,472 33,359
Intermediate Bond Fund* (126,787) 178,526
Blue Chip Fund* 259,581 338,291
Marsico Growth & Income Fund 212,496 -
Marsico Focused Equities Fund 849,604 -
Balanced Assets Fund 75,718 -
Short-Intermediate Govt Fund 359,425 -
Short-Term Income Fund 252,740 -
Strategic Income Fund 150,040 -
Bond Fund 1,282,937 -
Municipal Income Fund 255,948 127,538
Short-Term Municipal Income Fund 47,452 23,647
Intermediate Municipal Bond Fund 356,849 177,827
Fl Int Municipal Bond Fund 94,817 47,254
GA Int Municipal Bond Fund 60,248 30,020
MD Intl Municipal Bond Fund 80,206 39,967
NC Int Municipal Bond Fund 79,902 39,819
SC Int Municipal Bond Fund 102,081 50,871
TN Int Municipal Bond Fund 20,860 10,395
TX Int Municipal Bond Fund 148,383 73,944
VA Int Municipal Bond Fund 114,867 57,241
FL Municipal Bond Fund 59,301 29,562
GA Municipal Bond Fund 9,520 4,746
MD Municipal Bond Fund 14,336 7,146
NC Municipal Bond Fund 16,677 8,308
SC Municipal Bond Fund 12,452 6,206
TN Municipal Bond Fund 4,275 2,130
TX Municipal Bond Fund 6,017 3,000
VA Municipal Bond Fund 11,021 5,492
Emerging Markets Fund 13,984 -
Strategic Growth Fund 278,951 -
------- ---------
$19,779,518 $3,669,714
=========== ==========
</TABLE>
110
<PAGE>
The table set forth below states the net Sub-Administration fees paid
to BNY and waived for the fiscal year ended March 31, 2000.
Sub-Administration Fees
-----------------------
<TABLE>
<CAPTION>
Fees Paid to BONY Waiver per expense ratio analysis
----------------- ---------------------------------
<S> <C> <C>
Prime Fund 659,433 -
Treasury Fund 264,326 -
Equity Income Fund 391,324 -
Govt Securities Fund 103,347 -
Intl Equity Fund 629,092 -
Intl Growth Fund 125,587 -
Intl Value Fund 296,329 -
Small Company Fund 361,001 -
US Govt Bond Fund 49,268 -
Govt Money Market Fund 59,736 -
Tax Exempt Fund 257,352 -
Value Fund 885,891 -
Capital Growth Fund 519,822 -
Aggressive Growth Fund 303,339 -
LargeCap Index Fund 620,995 -
MidCap Growth Fund 157,660 -
Managed Index Fund 427,965 -
SmallCap Index Fund 122,303 -
Cash Reserves 1,294,123 -
Money Market Reserves 375,048 -
Treasury Reserves 650,728 -
Government Reserves 210,738 -
Municipal Reserves 163,412 -
California Tax-Exempt Reserves* 183,206 -
Asset Allocation Fund* 196,572 -
Convertible Securities Fund* 180,558 -
California Municipal Bond Fund* 82,112 -
Intermediate Bond Fund* 39,378 -
Blue Chip Fund* 469,361 -
Marsico Growth & Income Fund 212,943 -
Marsico Focused Equities Fund 672,587 -
Balanced Assets Fund 75,661 -
Short-Intermediate Govt Fund 299,160 -
Short-Term Income Fund 210,308 -
Strategic Income Fund 124,984 -
Bond Fund 695,519 -
Municipal Income Fund 319,268 -
Short-Term Municipal Income Fund 59,184 -
Intermediate Municipal Bond Fund 445,145 -
Fl Int Municipal Bond Fund 118,295 -
GA Int Municipal Bond Fund 75,148 -
MD Intl Municipal Bond Fund 100,043 -
NC Int Municipal Bond Fund 99,677 -
SC Int Municipal Bond Fund 127,349 -
TN Int Municipal Bond Fund 26,021 -
TX Int Municipal Bond Fund 185,113 -
VA Int Municipal Bond Fund 143,281 -
FL Municipal Bond Fund 74,010 -
GA Municipal Bond Fund 11,879 -
MD Municipal Bond Fund 17,889 -
NC Municipal Bond Fund 20,797 -
SC Municipal Bond Fund 15,529 -
TN Municipal Bond Fund 5,331 -
TX Municipal Bond Fund 7,510 -
VA Municipal Bond Fund 13,748 -
Emerging Markets Fund 24,755 -
Strategic Growth Fund 279,665 -
------------------ -----------------
</TABLE>
---------------------------------
*The amounts shown for this Fund represent fees for the Fiscal period
from May 16, 1999 to March 31, 2000.
111
<PAGE>
Bank of New York Co-Administration Fee Structure
------------------------------------------------
Money Market Funds
Breakpoints Rate
--------------------------------------- -------------------
< or equal to $3 billion 0.0125%
>$3 billion to $6 billion 0.0100%
> $6 billion to $8 billion 0.0050%
> $8 billion to $10 billion 0.0050%
In excess of $10 billion 0.0025%
Municipal Funds
Breakpoints Rate
---------------------------------------- -------------------
< or equal to $500 million 0.0500%
>$500 million to $1 billion 0.0500%
> $1 billion to $1.5 billion 0.0300%
> $1.5 billion to $2 billion 0.0150%
In excess of $2 billion 0.0050%
Government and Corporate Bond Funds
Breakpoints Rate
---------------------------------------- -------------------
< than or equal to $500 million 0.0500%
> $500 million to $1 billion 0.0500%
> $1 billion to $1.5 billion 0.0300%
> $1.5 billion to $2 billion 0.0150%
In excess of $2 billion 0.0050%
Domestic Stock Funds
Breakpoints Rate
---------------------------------------- -------------------
< or equal to $500 million 0.0600%
> $500 million to $1 billion 0.0600%
> $1 billion to $1.5 billion 0.0400%
$1.5 billion to $2 billion 0.0200%
In excess of $2 billion 0.0100%
International Stock Funds
Breakpoints Rate
---------------------------------------- -------------------
< than or equal to $500 million 0.0700%
> $500 million to $1 billion 0.0700%
> $1 billion to $1.5 billion 0.0500%
> $1.5 billion to $2 billion 0.0300%
In excess of $2 billion 0.0100%
Exceptions:
High Yield Bond and High Yield Bond Annuity follow International pricing
schedule.
Marsico 21st Century follows International pricing schedule.
The table set forth below states the net Co-Administration fees paid to
BAAI and waived for the fiscal period December 1, 1998 through March 31, 1999.
112
<PAGE>
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund $224,770 0
Treasury Fund 83,137 0
Equity Income Fund 26,068 0
Government Securities Fund 5,693 0
International Equity Fund 26,254 0
International Growth Fund 7,126 0
International Value Fund 4,657 0
Small Company Fund 12,417 0
U.S. Government Bond Fund 4,095 0
Government Money Market Fund 18,715 0
Tax Exempt Fund 92,397 0
Value Fund 77,026 0
Capital Growth Fund 27,883 0
Aggressive Growth Fund 17,500 0
LargeCap Index Fund 30,267 0
MidCap Growth Fund 7,974 0
Managed Index Fund 23,116 0
SmallCap Index Fund 7,330 0
Managed Value Index Fund 328 0
Managed SmallCap Value Index Fund 180 0
Marsico Growth & Income Fund 4,686 0
Marsico Focused Equities Fund 13,634 0
Balanced Assets Fund 5,289 0
Short-Intermediate Gov't Fund 22,020 0
Short-Term Income Fund 14,084 0
Strategic Income Fund 13,321 0
Bond Fund 61,222 0
Municipal Income Fund 22,441 0
Short-Term Municipal Income Fund 4,056 0
Intermediate Municipal Bond Fund 31,012 0
Florida Intermediate Municipal Bond Fund 8,212 0
Georgia Intermediate Municipal Bond Fund 5,394 0
Maryland Intermediate Municipal Bond Fund 6,862 0
North Carolina Intermediate Municipal Bond Fund 6,825 0
South Carolina Intermediate Municipal Bond Fund 8,946 0
Tennessee Intermediate Municipal Bond Fund 1,803 0
Texas Intermediate Municipal Bond Fund 13,204 0
Virginia Intermediate Municipal Bond Fund 9,640 0
Florida Municipal Bond Fund 5,342 0
Georgia Municipal Bond Fund 780 0
Maryland Municipal Bond Fund 1,144 0
North Carolina Municipal Bond Fund 1,360 0
South Carolina Municipal Bond Fund 801 0
Tennessee Municipal Bond Fund 361 0
Texas Municipal Bond Fund 569 0
Virginia Municipal Bond Fund 907 0
Emerging Markets Fund 501 0
Strategic Growth Fund 7,172 0
</TABLE>
The table set forth below states the net Co-Administration fees paid to
Stephens and waived for the fiscal period December 1, 1998 through March 31,
1999.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund $1,786,232 $449,540
Treasury Fund 644,316 166,276
Equity Income Fund 157,132 ---
Government Securities Fund 31,535 ---
International Equity Fund 97,425 ---
International Growth Fund 26,598 ---
International Value Fund 17,477 ---
Small Company Fund 75,409 ---
U.S. Government Bond Fund 22,681 ---
Government Money Market Fund 145,044 37,431
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Tax Exempt Fund 716,080 184,796
Value Fund 561,488 ---
Capital Growth Fund 168,052 ---
Aggressive Growth Fund 105,027 ---
LargeCap Index Fund 183,645 ---
MidCap Growth Fund 47,253 ---
Managed Index Fund 140,297 ---
SmallCap Index Fund 44,531 ---
Managed Value Index Fund 1,995 ---
Managed SmallCap Value Index Fund 1,091 ---
Marsico Growth & Income Fund 28,322 ---
Marsico Focused Equities Fund 82,370 ---
Balanced Assets Fund 32,122 ---
Short-Intermediate Gov't Fund 121,946 ---
Short-Term Income Fund 78,018 ---
Strategic Income Fund 73,849 ---
Bond Fund 372,610 ---
Municipal Income Fund 124,746 44,881
Short-Term Municipal Income Fund 22,854 8,113
Intermediate Municipal Bond Fund 172,364 62,025
Florida Intermediate Municipal Bond Fund 45,671 16,423
Georgia Intermediate Municipal Bond Fund 29,968 10,787
Maryland Intermediate Municipal Bond Fund 38,131 13,725
North Carolina Intermediate Municipal Bond Fund 37,951 13,647
South Carolina Intermediate Municipal Bond Fund 50,278 17,891
Tennessee Intermediate Municipal Bond Fund 10,131 3,603
Texas Intermediate Municipal Bond Fund 74,216 26,408
Virginia Intermediate Municipal Bond Fund 54,229 19,280
Florida Municipal Bond Fund 29,669 10,686
Georgia Municipal Bond Fund 4,337 1,560
Maryland Municipal Bond Fund 6,359 2,285
North Carolina Municipal Bond Fund 7,559 2,719
South Carolina Municipal Bond Fund 4,508 1,602
Tennessee Municipal Bond Fund 2,023 720
Texas Municipal Bond Fund 3,195 1,138
Virginia Municipal Bond Fund 5,104 1,817
Emerging Markets Fund 1,034 ---
Strategic Growth Fund 43,466 ---
</TABLE>
The table set forth below states the net Sub-Administration fees paid
to BNY and waived for the fiscal year period December 1, 1998 through March 31,
1999.
Sub-Administration Fees
-----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund $238,058 $0
Treasury Fund 104,546 ---
Equity Income Fund 99,504 ---
Government Securities Fund 13,627 ---
International Equity Fund 141,937 ---
International Growth Fund 35,926 ---
International Value Fund 25,331 ---
Small Company Fund 47,608 ---
U.S. Government Bond Fund 9,779 ---
Government Money Market Fund 23,373 ---
Tax Exempt Fund 160,022 ---
Value Fund 199,844 ---
Capital Growth Fund 109,532 ---
Aggressive Growth Fund 69,020 ---
LargeCap Index Fund 120,888 ---
MidCap Growth Fund 29,998 ---
Managed Index Fund 91,320 ---
SmallCap Index Fund 27,811 ---
Managed Value Index Fund 1,058 ---
Managed SmallCap Value Index Fund 694 ---
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Marsico Growth & Income Fund 22,432 ---
Marsico Focused Equities Fund 66,100 ---
Balanced Assets Fund 20,228 ---
Short-Intermediate Gov't Fund 52,627 ---
Short-Term Income Fund 33,736 ---
Strategic Income Fund 32,296 ---
Bond Fund 112,350 ---
Municipal Income Fund 55,722 ---
Short-Term Municipal Income Fund 11,595 ---
Intermediate Municipal Bond Fund 76,838 ---
Florida Intermediate Municipal Bond Fund 20,539 ---
Georgia Intermediate Municipal Bond Fund 13,341 ---
Maryland Intermediate Municipal Bond Fund 16,968 ---
North Carolina Intermediate Municipal Bond Fund 17,041 ---
South Carolina Intermediate Municipal Bond Fund 24,764 ---
Tennessee Intermediate Municipal Bond Fund 5,015 ---
Texas Intermediate Municipal Bond Fund 36,575 ---
Virginia Intermediate Municipal Bond Fund 26,442 ---
Florida Municipal Bond Fund 13,099 ---
Georgia Municipal Bond Fund 1,950 ---
Maryland Municipal Bond Fund 2,886 ---
North Carolina Municipal Bond Fund 3,389 ---
South Carolina Municipal Bond Fund 2,252 ---
Tennessee Municipal Bond Fund 989 ---
Texas Municipal Bond Fund 1,579 ---
Virginia Municipal Bond Fund 2,511 ---
Emerging Markets Fund 2,648 ---
Strategic Growth Fund 30,044 ---
</TABLE>
The table set forth below states the net Co-Administration fees paid to
First Data Investor Services, Inc. ("First Data") and waived for the fiscal
period December 1, 1998 through March 31, 1999, under the previous
co-administration arrangements. The amounts paid and waived are for the time
period to the end of the conversion to The Bank of New York. The conversion
dates are as follows: January 4, 1999 for Marsico Focused Equities Fund and
Marsico Growth and Income Fund; January 14, 1999 for Balanced Assets, Capital
Growth, Disciplined Equity, Emerging Growth, Equity Income, Equity Index,
Managed Index, Managed SmallCap Index, Managed SmallCap Value Index, Managed
Value Index, Small Company Growth, Strategic Equity, and Value; January 26, 1999
for Short Term Municipal, South Carolina Intermediate Municipal Bond, South
Carolina Municipal Bond, Tennessee Intermediate Municipal Bond, Tennessee
Municipal Bond, Texas Intermediate Municipal Bond, Texas Municipal Bond,
Virginia Intermediate Municipal Bond, and Virginia Municipal Bond; February 2,
1999 for Municipal Income, Intermediate Municipal Bond, Florida Intermediate
Municipal Bond, Florida Municipal Bond, Georgia Intermediate Municipal Bond,
Georgia Municipal Bond, Maryland Intermediate Bond, Maryland Municipal Bond,
North Carolina Intermediate Municipal Bond, and North Carolina Municipal Bond;
and February 3, 1999 for Diversified Income, Government Securities, Short
Intermediate Government, Short Term Income, Strategic Fixed Income and U.S.
Government Bond.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid
Total
-----
<S> <C>
Prime Fund --
Treasury Fund --
Equity Income Fund 28,525
Government Securities Fund 11,769
International Equity Fund 36,158
International Growth Fund 9,941
International Value Fund 6,011
Small Company Fund 13,005
U.S. Government Bond Fund 8,485
Government Money Market Fund -
Tax Exempt Fund -
Value Fund 81,131
Capital Growth Fund 29,132
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
Fees Paid
Total
-----
<S> <C>
Aggressive Growth Fund 18,589
LargeCap Index Fund 29,435
MidCap Growth Fund 9,726
Managed Index Fund 22,948
SmallCap Index Fund 7,791
Managed Value Index Fund 424
Managed SmallCap Value Index Fund 186
Marsico Growth & Income Fund 2,795
Marsico Focused Equities Fund 7,708
Balanced Assets Fund 5,546
Short-Intermediate Gov't Fund 45,565
Short-Term Income Fund 29,076
Strategic Income Fund 27,213
Bond Fund 126,271
Municipal Income Fund 44,763
Short-Term Municipal Income Fund 6,885
Intermediate Municipal Bond Fund 62,000
Florida Intermediate Municipal Bond Fund 16,273
Georgia Intermediate Municipal Bond Fund 10,822
Maryland Intermediate Municipal Bond Fund 13,746
North Carolina Intermediate Municipal Bond Fund 13,539
South Carolina Intermediate Municipal Bond Fund 15,768
Tennessee Intermediate Municipal Bond Fund 3,157
Texas Intermediate Municipal Bond Fund 23,244
Virginia Intermediate Municipal Bond Fund 16,760
Florida Municipal Bond Fund 10,787
Georgia Municipal Bond Fund 1,548
Maryland Municipal Bond Fund 2,245
North Carolina Municipal Bond Fund 2,702
South Carolina Municipal Bond Funds 1,386
Tennessee Municipal Bond Fund 640
Texas Municipal Bond Fund 1,000
Virginia Municipal Bond Fund 1,603
Emerging Markets Fund 1,539
Strategic Growth Fund 6,368
</TABLE>
The table set forth below states the net Co-Administration fees paid to
Stephens and waived for the fiscal period April 1, 1998 through November 30,
1998, under the previous administration arrangements. The administration
arrangements have been revised and the fees set forth below are not reflective
of those changes. The new arrangements appointing Stephens and BAAI as
Co-Administrators and BNY as Sub-Administrator were effective on December 1,
1998.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund $3,867,209 $900,323
Treasury Fund 1,654,837 384,444
Equity Income Fund 417,585 --
Government Securities Fund 59,181 --
International Equity Fund 179,847 --
International Growth Fund 68,148 --
International Value Fund 20,181 --
Small Company Fund 159,748 --
U.S. Government Bond Fund 73,538 --
Government Money Market Fund 190,129 44,099
Tax Exempt Fund 1,545,156 359,494
Value Fund 1,009,530 --
Capital Growth Fund 347,733 --
Aggressive Growth Fund 183,239 --
LargeCap Index Fund 294,366 --
MidCap Growth Fund 120,329 --
Managed Index Fund 238,669 --
SmallCap Index Fund 83,393 --
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Managed Value Index Fund 4,997 --
Managed SmallCap Value Index Fund 1,960 --
Marsico Growth & Income Fund 21,106 --
Marsico Focused Equities Fund 58,002 --
Balanced Assets Fund 68,260 --
Short-Intermediate Gov't Fund 254,040 --
Short-Term Income Fund 155,386 --
Strategic Income Fund 134,498 --
Bond Fund 676,515 --
Municipal Income Fund 217,522 81,215
Short-Term Municipal Income Fund 41,725 15,506
Intermediate Municipal Bond Fund 326,173 120,993
Florida Intermediate Municipal Bond Fund 81,828 30,370
Georgia Intermediate Municipal Bond Fund 54,784 20,345
Maryland Intermediate Municipal Bond Fund 60,219 22,669
North Carolina Intermediate Municipal Bond Fund 71,685 26,583
South Carolina Intermediate Municipal Bond Fund 97,730 36,206
Tennessee Intermediate Municipal Bond Fund 18,283 6,779
Texas Intermediate Municipal Bond Fund 141,467 52,443
Virginia Intermediate Municipal Bond Fund 91,890 34,139
Florida Municipal Bond Fund 50,506 19,089
Georgia Municipal Bond Fund 7,300 2,712
Maryland Municipal Bond Fund 9,956 3,712
North Carolina Municipal Bond Fund 12,927 4,808
South Carolina Municipal Bond Fund 8,113 3,015
Tennessee Municipal Bond Fund 3,915 1,449
Texas Municipal Bond Fund 6,191 2,296
Virginia Municipal Bond Fund 9,842 3,653
Emerging Markets Fund 3,220 --
Strategic Growth Fund 13,355 --
</TABLE>
The table set forth below states the net Co-Administration fees paid to
First Data Investor Services, Inc. ("First Data") and waived for the fiscal
period April 1, 1998 through November 30, 1998, under the previous
co-administration arrangements.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund 284,797 $0
Treasury Fund 121,786 --
Equity Income Fund 198,370 --
Government Securities Fund 42,490 --
International Equity Fund 348,548 --
International Growth Fund 123,149 --
International Value Fund 39,973 --
Small Company Fund 72,787 --
U.S. Government Bond Fund 51,881 --
Government Money Market Fund 14,031 --
Tax Exempt Fund 114,181 --
Value Fund 466,814 --
Capital Growth Fund 167,156 --
Aggressive Growth Fund 93,854 --
LargeCap Index Fund 133,941 --
MidCap Growth Fund 63,781 --
Managed Index Fund 108,909 --
SmallCap Index Fund 38,005 --
Managed Value Index Fund 2,281 --
Managed SmallCap Value Index Fund 897 --
Marsico Growth & Income Fund 9,838 --
Marsico Focused Equities Fund 27,007 --
Balanced Assets Fund 31,160 --
Short-Intermediate Gov't Fund 181,172 --
Short-Term Income Fund 111,375 --
Strategic Income Fund 96,188 --
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Bond Fund 483,249 --
Municipal Income Fund 156,232 --
Short-Term Municipal Income Fund 29,854 --
Intermediate Municipal Bond Fund 233,013 --
Florida Intermediate Municipal Bond Fund 58,485 --
Georgia Intermediate Municipal Bond Fund 39,175 --
Maryland Intermediate Municipal Bond Fund 43,548 --
North Carolina Intermediate Municipal Bond Fund 51,196 --
South Carolina Intermediate Municipal Bond Fund 69,741 --
Tennessee Intermediate Municipal Bond Fund 13,055 --
Texas Intermediate Municipal Bond Fund 101,011 --
Virginia Intermediate Municipal Bond Fund 65,729 --
Florida Municipal Bond Fund 36,636 --
Georgia Municipal Bond Fund 5,224 --
Maryland Municipal Bond Fund 7,143 --
North Carolina Municipal Bond Fund 9,256 --
South Carolina Municipal Bond Fund 5,805 --
Tennessee Municipal Bond Fund 2,793 --
Texas Municipal Bond Fund 4,422 --
Virginia Municipal Bond Fund 7,036 --
Emerging Markets Fund 24,047 --
Strategic Growth Fund 6,331 --
</TABLE>
The table set forth below states the net Sub-Administration fees paid
to BAAI (or its predecessor) and waived for the fiscal period April 1, 1998
through November 30, 1998, under the previous sub-administration arrangements.
Sub-Administration Fees
-----------------------
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
Prime Fund $ 349,604 $ 0
Treasury Fund 145,599 --
Equity Income Fund 47,576 --
Government Securities Fund 8,778 --
International Equity Fund 41,411 --
International Growth Fund 13,950 --
International Value Fund 6,468 --
Small Company Fund 19,999 --
U.S. Government Bond Fund 8,998 --
Government Money Market Fund 16,333 --
Tax Exempt Fund 138,133 --
Value Fund 116,337 --
Capital Growth Fund 40,508 --
Aggressive Growth Fund 25,274 --
LargeCap Index Fund 35,149 --
MidCap Growth Fund 13,771 --
Managed Index Fund 29,454 --
SmallCap Index Fund 10,373 --
Managed Value Index Fund 615 --
Managed SmallCap Value Index Fund 247 --
Marsico Growth & Income Fund 3,058 --
Marsico Focused Equities Fund 8,279 --
Balanced Assets Fund 8,508 --
Short-Intermediate Gov't Fund 35,005 --
Short-Term Income Fund 22,627 --
Strategic Income Fund 19,103 --
Bond Fund 95,000 --
Municipal Income Fund 32,318 --
Short-Term Municipal Income Fund 5,952 --
Intermediate Municipal Bond Fund 45,778 --
Florida Intermediate Municipal Bond Fund 11,540 --
Georgia Intermediate Municipal Bond Fund 7,764 --
Maryland Intermediate Municipal Bond Fund 9,579 --
North Carolina Intermediate Municipal Bond Fund 10,031 --
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
--------- -----------
<S> <C> <C>
South Carolina Intermediate Municipal Bond Fund 13,556 --
Tennessee Intermediate Municipal Bond Fund 2,553 --
Texas Intermediate Municipal Bond Fund 19,744 --
Virginia Intermediate Municipal Bond Fund 13,073 --
Florida Municipal Bond Fund 8,298 --
Georgia Municipal Bond Fund 1,044 --
Maryland Municipal Bond Fund 1,466 --
North Carolina Municipal Bond Fund 1,854 --
South Carolina Municipal Bond Fund 1,157 --
Tennessee Municipal Bond Fund 542 --
Texas Municipal Bond Fund 866 --
Virginia Municipal Bond Fund 1,392 --
Emerging Markets Fund 1,702 --
Strategic Growth Fund 2,188 --
</TABLE>
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal year ended March 31, 1998, under the previous
administration arrangements.
Administration Fees
-------------------
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
------------- -----------
<S> <C> <C>
Prime Fund 4,056,997 1,110,297
Treasury Fund 2,423,641 664,082
Equity Income Fund 494,468 0.00
Government Securities Fund 71,126 0.00
International Equity Fund 405,314 0.00
International Growth Fund 230,311 0.00
International Value Fund n/a n/a
Small Company Fund 96,976 0.00
U.S. Government Bond Fund 89,058 0.00
Government Money Market Fund 259,300 71,128
Tax Exempt Fund 1,591,584 436,123
Value Fund 1,408,801 0.00
Capital Growth Fund 503,034 0.00
Aggressive Growth Fund 101,504 0.00
LargeCap Index Fund 458,619 0.00
MidCap Growth Fund 246,308 0.00
Managed Index Fund 111,133 0.00
SmallCap Index Fund 61,116 0.00
Managed Value Index Fund 1,630 0.00
Managed SmallCap Value Index Fund 848 0.00
Marsico Growth & Income Fund 898 0.00
Marsico Focused Equities Fund 2,227 0.00
Balanced Assets Fund 134,032 0.00
Short-Intermediate Gov't Fund 401,570 0.00
Short-Term Income Fund 203,225 0.00
Strategic Income Fund 173,538 0.00
Bond Fund 903,615 0.00
Municipal Income Fund 153,482 78,672
Short-Term Municipal Income Fund 38,788 20,059
Intermediate Municipal Bond Fund 254,780 129,378
Florida Intermediate Municipal Bond Fund 61,898 31,419
Georgia Intermediate Municipal Bond Fund 44,811 22,914
Maryland Intermediate Municipal Bond Fund 36,010 26,201
North Carolina Intermediate Municipal Bond Fund 53,527 27,061
South Carolina Intermediate Municipal Bond Fund 79,235 40,150
Tennessee Intermediate Municipal Bond Fund 14,824 7,566
Texas Intermediate Municipal Bond Fund 102,899 51,598
Virginia Intermediate Municipal Bond Fund 85,542 44,703
Florida Municipal Bond Fund 17,169 8,920
Georgia Municipal Bond Fund 6,369 3,320
Maryland Municipal Bond Fund 6,978 3,619
North Carolina Municipal Bond Fund 11,379 5,922
South Carolina Municipal Bond Funds 7,376 3,836
Tennessee Municipal Bond Fund 3,826 1,990
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
------------- -----------
<S> <C> <C>
Texas Municipal Bond Fund 6,334 3,301
Virginia Municipal Bond Fund 8,843 4,598
Emerging Markets Fund 21,266 0.00
</TABLE>
The table below sets forth the total co-administration fees paid to
First Data Investor Services Group, Inc. ("First Data") and waived by First Data
for the fiscal year ended March 31, 1998. First Data was the co-administrator
under the previous administration arrangements.
Co-Administration Fees
----------------------
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
------------- -----------
<S> <C> <C>
Prime Fund 384,193 0.00
Treasury Fund 232,691 0.00
Equity Income Fund 244,825 0.00
Government Securities Fund 50,171 0.00
International Equity Fund 623,612 0.00
International Growth Fund 306,814 0.00
International Value Fund n/a n/a
Small Company Fund 43,762 0.00
U.S. Government Bond Fund 59,434 0.00
Government Money Market Fund 25,208 0.00
Tax Exempt Fund 152,908 0.00
Value Fund 680,262 0.00
Capital Growth Fund 259,289 0.00
Aggressive Growth Fund 63,108 0.00
Equity Index Fund 214,846 0.00
MidCap Growth Fund 131,921 0.00
Managed Index Fund 50,870 0.00
SmallCap Index Fund 22,706 0.00
Managed Value Index Fund 709 0.00
Managed SmallCap Value Index Fund 371 0.00
Marsico Growth & Income Fund 387 0.00
Marsico Focused Equities Fund 953 0.00
Balanced Assets Fund 65,073 0.00
Short-Intermediate Gov't Fund 275,597 0.00
Short-Term Income Fund 132,125 0.00
Strategic Income Fund 114,464 0.00
Bond Fund 621,285 0.00
Municipal Income Fund 161,207 0.00
Short-Term Municipal Income Fund 41,447 0.00
Intermediate Municipal Bond Fund 262,730 0.00
Florida Intermediate Municipal Bond Fund 63,773 0.00
Georgia Intermediate Municipal Bond Fund 46,846 0.00
Maryland Intermediate Municipal Bond Fund 31,450 0.00
North Carolina Intermediate Municipal Bond Fund 54,714 0.00
South Carolina Intermediate Municipal Bond Fund 81,364 0.00
Tennessee Intermediate Municipal Bond Fund 15,440 0.00
Texas Intermediate Municipal Bond Fund 103,490 0.00
Virginia Intermediate Municipal Bond Fund 92,909 0.00
Florida Municipal Bond Fund 18,511 0.00
Georgia Municipal Bond Fund 6,911 0.00
Maryland Municipal Bond Fund 7,494 0.00
North Carolina Municipal Bond Fund 12,309 0.00
South Carolina Municipal Bond Fund 7,965 0.00
Tennessee Municipal Bond Fund 4,133 0.00
Texas Municipal Bond Fund 6,873 0.00
Virginia Municipal Bond Fund 9,547 0.00
Emerging Markets Fund 67,559 0.00
</TABLE>
The table set forth below states the net Sub-Administration fees paid
and waived to Bank of America, or its affiliate BAAI (or their predecessors),
for the fiscal year ended March 31, 1998.
120
<PAGE>
Sub-Administration Fees
-----------------------
<TABLE>
<CAPTION>
Net Fees Paid Fees Waived
------------- -----------
<S> <C> <C>
Prime Fund $555,149 $0
Treasury Fund 332,041 --
Equity Income Fund 73,929 --
Government Securities Fund 12,130 --
International Equity Fund 102,893 --
International Growth Fund 55,097 --
International Value Fund 0 --
Small Company Fund 14,378 --
U.S. Government Bond Fund 15,227 --
Government Money Market Fund 35,564 --
Tax Exempt Fund 218,062 --
Value Fund 208,906 --
Capital Growth Fund 76,232 --
Aggressive Growth Fund 16,484 --
LargeCap Index Fund 67,819 --
MidCap Growth Fund 37,823 --
Managed Index Fund 16,200 --
SmallCap Index Fund 8,382 --
Managed Value Index Fund 250 --
Managed SmallCap Value Index Fund 141 --
Marsico Growth & Income Fund 128 --
Marsico Focused Equities Fund 318 --
Balanced Assets Fund 19,910 --
Short-Intermediate Gov't Fund 67,717 --
Short-Term Income Fund 33,535 --
Strategic Income Fund 28,800 --
Bond Fund 152,490 --
Municipal Income Fund 39,336 --
Short-Term Municipal Income Fund 10,029 --
Intermediate Municipal Bond Fund 64,689 --
Florida Intermediate Municipal Bond Fund 15,709 --
Georgia Intermediate Municipal Bond Fund 11,457 --
Maryland Intermediate Municipal Bond Fund 9,366 --
North Carolina Intermediate Municipal Bond Fund 13,530 --
South Carolina Intermediate Municipal Bond Fund 20,075 --
Tennessee Intermediate Municipal Bond Fund 3,783 --
Texas Intermediate Municipal Bond Fund 25,799 --
Virginia Intermediate Municipal Bond Fund 22,306 --
Florida Municipal Bond Fund 4,460 --
Georgia Municipal Bond Fund 1,660 --
Maryland Municipal Bond Fund 1,809 --
North Carolina Municipal Bond Fund 2,961 --
South Carolina Municipal Bond Fund 1,918 --
Tennessee Municipal Bond Fund 995 --
Texas Municipal Bond Fund 1,651 --
Virginia Municipal Bond Fund 2,299 --
Emerging Markets Fund 8,983 --
</TABLE>
The table set forth below states the net combined Administration fees
paid to Stephens and waived for the fiscal year ended April 30, 1998 under the
previous administration arrangements. As of December 1, 1998, the administration
arrangements have been revised. Accordingly, the fees set forth below are shown
for the periods, May 1, 1998 through November 30, 1998 and from December 1, 1998
through March 31, 1999. For the fiscal years ended April 30, 1998 and March 31,
1999 the Funds paid combined administrative fees as follows:
Net Net Fees Net Net Fees
Fees Paid Waived Fees Paid Waived
1998 1998 1999 1999
---- ---- ---- ----
Cash Reserves $444,739 $3,310,637 $922,159 $5,759,841
Treasury
Reserves 112,671 839,649 281,755 1,603,245
121
<PAGE>
Net Net Fees Net Net Fees
Fees Paid Waived Fees Paid Waived
1998 1998 1999 1999
---- ---- ---- ----
Government
Reserves 55,996 416,493 87,380 492,620
Municipal
Reserves 29,152 216,243 48,585 272,415
Money Market
Reserves 0 0 121,254 585,746
The table set forth below states the net Administration fees paid to
Stephens and waived for the fiscal period May 1, 1998 through November 30, 1998.
Administration Fees
-------------------
Fees Paid Fees Waived
Cash Reserves $390,477 $3,654,043
Treasury Reserves 112,205 1,030,887
Government Reserves 33,897 311,090
Money Market Reserves 22,143 100,249
Municipal Reserves 18,438 365,740
The table set forth below states the net Co-Administration fees paid to
First Data and waived for the fiscal period May 1, 1998 through November 30,
1998.
Co-Administration Fees
----------------------
Fees Paid Fees Waived
Cash Reserves $39,734 $0
Treasury Reserves 11,370 0
Government Reserves 3,441 0
Money Market Reserves 1,991 0
Municipal Reserves 1,860 0
The table set forth below states the net Sub-Administration fees paid
to BAAI and waived for the fiscal period May 1, 1998 through November 30, 1998.
Sub-Administration Fees
-----------------------
Fees Paid Fees Waived
Cash Reserves $0 $0
Treasury Reserves 0 0
Government Reserves 0 0
Money Market Reserves 0 0
Municipal Reserves 0 0
The table set forth below states the net Co-Administration fees paid to
BAAI and waived for the fiscal period December 1, 1998 through March 31, 1999.
Co-Administration Fees
----------------------
Fees Paid Fees Waived
Cash Reserves $0 $0
Treasury Reserves 0 0
Government Reserves 0 0
122
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Money Market Reserves 0 0
Municipal Reserves 0 0
The table set forth below states the net Co-Administration fees paid to
Stephens and waived for the fiscal period December 1, 1998 through March 31,
1999.
Co-Administration Fees
----------------------
Fees Paid Fees Waived
Cash Reserves $225,030 $2,105,798
Treasury Reserves 62,306 572,358
Government Reserves 19,781 181,530
Money Market Reserves 38,026 172,166
Municipal Reserves 11,090 220,006
The table set forth below states the net Sub-Administration fees paid
to BNY and waived for the fiscal period December 1, 1998 through March 31, 1999.
Sub-Administration Fees
-----------------------
Fees Paid Fees Waived
Cash Reserves $266,918 $0
Treasury Reserves 95,874 0
Government Reserves 30,261 0
Money Market Reserves 59,094 0
Municipal Reserves 17,197 0
Distribution Plans and Shareholder Servicing Arrangements
Investor A Shares
-----------------
Each Company has adopted an Amended and Restated Shareholder Servicing
and Distribution Plan (the "Investor A Plan") pursuant to Rule 12b-1 under the
1940 Act with respect to each Fund's Investor A Shares. The Investor A Plan
provides that each Fund may pay the Distributor or banks, broker/dealers or
other financial institutions that offer shares of the Fund and that have entered
into a Sales Support Agreement with the Distributor ("Selling Agents") or a
Shareholder Servicing Agreement with the respective Company, ("Servicing
Agents"), up to 0.10% (on an annualized basis) of the average daily net asset
value of Investor A Shares of the Money Market Funds and up to 0.25% (on an
annualized basis) of the average daily net asset value of the Non-Money Market
Funds.
With respect to the Money Market Funds, such payments may be made to
(i) the Distributor for reimbursements of distribution-related expenses actually
incurred by the Distributor, including, but not limited to, expenses of
organizing and conducting sales seminars, printing of prospectuses and
statements of additional information (and supplements thereto) and reports for
other than existing shareholders, preparation and distribution of advertising
material and sales literature and costs of administering the Investor A Plan, or
(ii) Selling Agents that have entered into a Sales Support Agreement with the
Distributor for providing sales support assistance in connection with the sale
of Investor A Shares of the Money Market Funds. The sales support assistance
provided by a Selling Agent under a Sales Support Agreement may include
forwarding sales literature and advertising provided by the Companies or the
Distributor to their customers and providing such other sales support assistance
as may be requested by the Distributor from time to time. Currently,
substantially all fees paid by the Money Market Funds pursuant to the Investor A
Plan are paid to compensate Selling Agents for providing sales support services,
with any remaining amounts being used by the Distributor to partially defray
other expenses incurred by the Distributor in distributing Investor A Shares.
Fees received by the Distributor pursuant to the Investor A Plan will not be
used to pay any interest expenses, carrying charges or other financing costs
(except to the extent permitted by the SEC) and will not be used to pay any
general and administrative expenses of the Distributor.
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With respect to the Non-Money Market Funds, (except the Short-Term
Income Fund and the Short-Term Municipal Income Fund) payments under the
Investor A Plan may be made to the Distributor for providing the
distribution-related services described in (i) above or to Servicing Agents that
have entered into a Shareholder Servicing Agreement with each Company for
providing shareholder support services to their Customers which hold of record
or beneficially Investor A Shares of a Non-Money Market Fund. Such shareholder
support services provided by Servicing Agents to holders of Investor A Shares of
the Non-Money Market Funds may include (i) aggregating and processing purchase
and redemption requests for Investor A Shares from their Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing their Customers with a service that invests the
assets of their accounts in Investor A Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Company on behalf of their Customers; (iv) providing information
periodically to their Customers showing their positions in Investor A Shares;
(v) arranging for bank wires; (vi) responding to their Customers' inquiries
concerning their investment in Investor A Shares; (vii) providing sub-accounting
with respect to Investor A Shares beneficially owned by their Customers or the
information necessary to us for sub-accounting; (viii) if required by law,
forwarding shareholder communications from each Company (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to their Customers (ix) forwarding to their
Customers proxy statements and proxies containing any proposals regarding the
Shareholder Servicing Agreement; (x) providing general shareholder liaison
services; and (xi) providing such other similar services as each Company may
reasonably request to the extent the Selling Agent is permitted to do so under
applicable statutes, rules or regulations. The Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund may not pay for
personal services and/or maintenance of shareholder accounts, as such terms are
interpreted by the NASD, under the Investor A Plan.
During the fiscal year ended March 31, 2000, the Distributor received
the following amount from Rule 12b-1 fees and CDSC fees in connection with
Investor A Shares of NFT, NFI, and NR Non-Money Market Funds: $956,731 and
$316,338, respectively. Of this amount, the Distributor retained $0 and $0,
respectively. Because the Funds of NFST have not yet completed a fiscal year,
fees paid are not included here.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund. There were
no unreimbursed expenses incurred under the Investor A Plans in the previous
year to be carried over to the current year from August 1, 2000 to August 1,
2001.
The Funds in the Nations Funds Family participate in joint distribution
activities with other Funds in the Nations Funds Family. The fees paid under
each Investor A Plan adopted by a Fund may be used to finance the distribution
of the shares of other Funds in the Nations Funds Family. Such distribution
costs are allocated based on the relative net asset size of the respective
Funds.
In addition, NFI and NR have adopted an Amended and Restated
Shareholder Servicing Plan for the Investor A Shares of the Money Market Funds
(the "Money Market Investor A Servicing Plan"). Pursuant to the Money Market
Investor A Servicing Plan, which became effective on March 28, 1993, each Money
Market Fund may pay banks, broker/dealers or other financial institutions that
have entered into a Shareholder Servicing Agreement with the Company ("Servicing
Agents") up to 0.25% (on an annualized basis) of the average daily net asset
value of the Investor A Shares of each Money Market Fund for providing
shareholder support services. Such shareholder support services provided by
Servicing Agents may include those shareholder support services discussed above
with respect to the Investor A Shares of the Non-Money Market Funds. Fees paid
pursuant to the Money Market Investor A Servicing Plan are calculated daily and
paid monthly.
In addition, NFT has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of NFT's Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund (the "Investor A
Servicing Plan"). Pursuant to the Investor A Servicing Plan, each such Fund may
pay banks, broker/dealers or other financial institutions that have entered into
a Shareholder Servicing Agreement with NFT ("Servicing Agents") up to 0.25% (on
an annualized basis) of the average daily net asset value of the Investor A
Shares of each Fund for providing shareholder support services. Such shareholder
support services provided by Servicing Agents may include those shareholder
support services discussed above with respect to the Investor A Plan. Fees paid
pursuant to the Investor A Servicing Plan are calculated daily and paid monthly.
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<PAGE>
During the fiscal year ended March 31, 2000, the Distributor received
the following amount from Rule 12b-1 fees and CDSC fees in connection with
Investor A Shares of NFT, NFI, and NR's Money Market Funds: $217,610 and
$106,101, respectively. Of this amount, the Distributor retained $0 and $0,
respectively.
Expenses incurred by the Distributor pursuant to the Investor A Plan in
any given year may exceed the sum of the fees received under the Investor A
Plan. Any such excess may be recovered by the Distributor in future years so
long as the Investor A Plan is in effect. If the Investor A Plan were terminated
or not continued, a Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund.
Investor B Shares of the Money Market Funds and Investor C Shares of
the Non-Money Market Funds.
The Directors/Trustees of the Companies have approved an Amended and
Restated Distribution Plan in accordance with Rule 12b-1 under the 1940 Act for
the Investor B Shares of Money Market Funds and Investor C Shares of the
Non-Money Market Funds (the "Investor B/C Plan"). Pursuant to the Investor B/C
Plan, each Fund may pay the Distributor for certain expenses that are incurred
in connection with the distribution of shares. Payments under the Investor B/C
Plan will be calculated daily and paid monthly at a rate set from time to time
by the Board of Directors provided that the annual rate may not exceed 0.75% of
the average daily net asset value of Investor C Shares of a Non-Money Market
Fund and 0.10% of the average daily net asset value of Investor B Shares of a
Money Market Fund. Payments to the Distributor pursuant to the Investor B/C Plan
will be used (i) to compensate banks, other financial institutions or a
securities broker/dealer that have entered into a Sales Support Agreement with
the Distributor ("Selling Agents") for providing sales support assistance
relating to Investor B or Investor C Shares, for promotional activities intended
to result in the sale of Investor B or Investor C Shares such as to pay for the
preparation, printing and distribution of prospectuses to other than current
shareholders, and (ii) to compensate Selling Agents for providing sales support
services with respect to their Customers who are, from time to time, beneficial
and record holders of Investor B or Investor C Shares. Currently, substantially
all fees paid pursuant to the Investor B/C Plan are paid to compensate Selling
Agents for providing the services described in (i) and (ii) above, with any
remaining amounts being used by the Distributor to partially defray other
expenses incurred by the Distributor in distributing Investor B or Investor C
Shares. Fees received by the Distributor pursuant to the Investor B/C Plan will
not be used to pay any interest expenses, carrying charges or other financing
costs (except to the extent permitted by the SEC) and will not be used to pay
any general and administrative expenses of the Distributor.
Pursuant to the Investor B/C Plan, the Distributor may enter into Sales
Support Agreements with Selling Agents for providing sales support services to
their Customers who are the record or beneficial owners of Investor B Shares of
the Money Market Funds and Investor C Shares of the non-Money Market Funds. Such
Selling Agents will be compensated at the annual rate of up to 0.75% of the
average daily net asset value of the Investor C Shares of the Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds held of record or beneficially by such
Customers. The sales support services provided by Setting Agents may include
providing distribution assistance and promotional activities intended to result
in the sales of shares such as paying for the preparation, printing and
distribution of prospectuses to other than current shareholders.
Fees paid pursuant to the Investor B/C Plan are accrued daily and paid
monthly, and are charged as expenses of the relevant shares of a Fund as
accrued. Expenses incurred by the Distributor pursuant to the Investor B/C Plan
in any given year may exceed the sum of the fees received under the Investor B/C
Plan and payments received pursuant to contingent deferred sales charges. Any
such excess may be recovered by the Distributor in future years so long as the
Investor B/C Plan is in effect. If the Investor B/C Plan were terminated or not
continued, a Fund would not be contractually obligated to pay the Distributor
for any expenses not previously reimbursed by the Fund or recovered through
contingent deferred sales charges. There were no unreimbursed expenses incurred
under the Investor B/C Plans in the previous year to be carried over to the
current year from August 1, 2000 to August 1, 2001.
The Funds in the Nations Funds Family participate in joint distribution
activities with other Funds in the Nations Funds Family. The fees paid under
each Investor B/C Plan adopted by a Fund may be used to finance the distribution
of the shares of other Funds in the Nations Funds Family. Such distribution
costs are allocated based on the relative net asset size of the respective
Funds.
125
<PAGE>
In addition, the Directors have approved an Amended and Restated
Shareholder Servicing Plan ("Servicing Plan") with respect to the Investor B
Shares of the Money Market Funds and Investor C Shares of the Non-Money Market
Funds (the "Investor B/C Servicing Plan"). Pursuant to the Investor B/C
Servicing Plan, each Fund may pay banks, broker/dealers or other financial
institutions that have entered into a Shareholder Servicing Agreement with
Nations Funds ("Servicing Agents") for certain expenses that are incurred by the
Servicing Agents in connection with shareholder support services that are
provided by the Servicing Agents. Payments under the Investor B/C Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Money Market Funds' Investor B Shares and
the Non-Money Market Funds' Investor C Shares. The shareholder services provided
by the Servicing Agents may include (i) aggregating and processing purchase and
redemption requests for such Investor B or Investor C Shares from Customers and
transmitting promptly net purchase and redemption orders to our distributor or
transfer agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Investor B or Investor C Shares pursuant to specific
or pre-authorized instructions; (iii) dividend and distribution payments from
the Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Investor B or Investor C Shares; (v)
arranging for bank wires; (vi) responding to Customers' inquiries concerning
their investment in such Investor B or Investor C Shares; (vii) providing
sub-accounting with respect to such Investor B or Investor C Shares beneficially
owned by Customers or providing the information to us necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
from the Company (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
(ix) forwarding to Customers proxy statements and proxies containing any
proposals regarding the Shareholder Servicing Agreement; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Company may reasonably request to the extent the Servicing Agent is
permitted to do so under applicable statutes, rules or regulations.
During the fiscal year ended March 31,2000, the Distributor received
the following amount from Rule 12b-1 fees in connection with Investor B Shares
of the NFI, NFT, NR Money Market Funds: $0. Of this amount, the Distributor
retained $0.
During the fiscal year ended March 31, 2000, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the NFI, NFT, NR Non-Money Market Funds: $1,137,085 and
$439,823, respectively. Of these amounts, the Distributor retained $0 and $0,
respectively.
Investor C Shares of the Money Market Funds and Investor B Shares of
the Non-Money Market Funds.
The Directors/Trustees of each Company have approved a Distribution
Plan (the "Investor B Distribution Plan") with respect to Investor B Shares of
the Non-Money Market Funds. Pursuant to the Investor B Distribution Plan, a
Non-Money Market Fund may compensate or reimburse the Distributor for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor B Shares, including for sales related services provided by banks,
broker/dealers or other financial institutions that have entered into a Sales
Support Agreement relating to the Investor B Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor B Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Directors provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor B Shares.
The fees payable under the Investor B Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor B Distribution Plan may be made with respect to
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; overhead
and other office expenses of the Distributor relating to the foregoing (which
may be calculated as a carrying charge in the Distributor's or Selling Agents'
unreimbursed expenses), incurred in connection with distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating the Distributor's or
Selling Agents' offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefit costs of administrative,
operations and support personnel,
126
<PAGE>
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.
In addition, the Directors/Trustees have approved a Shareholder
Servicing Plan with respect to Investor C Shares of the Money Market Funds and
Investor B Shares of the Non-Money Market Funds ("Investor C/B Servicing Plan").
Pursuant to the Investor C/B Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Investor C/B Servicing Plan will be calculated daily and paid monthly at a
rate or rates set from time to time by the Board of Directors/Trustees, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Investor C Shares of the Money Market Funds and Investor B Shares of the
Non-Money Market Funds.
The fees payable under the Investor C/B Servicing Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for such Investor C or Investor
B Shares from Customers and transmitting promptly net purchase and redemption
orders to the Distributor or Transfer Agent; (ii) providing Customers with a
service that invests the assets of their accounts in such Investor C or Investor
B Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Companies on behalf of Customers;
(iv) providing information periodically to Customers showing their positions in
such Investor C or Investor B Shares; (v) arranging for bank wires; (vi)
responding to Customers' inquiries concerning their investment in such Investor
C or Investor B Shares; (vii) providing sub-accounting with respect to such
Investor C or Investor B Shares beneficially owned by Customers or providing the
information to us necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications from the Companies (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; (ix) forwarding to Customers proxy
statements and proxies containing any proposals regarding the Investor C
Servicing Plan or related agreements; (x) providing general shareholder liaison
Services; and (xi) providing such other similar services as the Companies may
reasonably request to the extent such Servicing Agent is permitted to do so
under applicable statutes, rules or regulations.
The fees payable under the Investor B Distribution Plan and Investor
C/B Servicing Plan (together, the "Investor C/B Plans") are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor C/B Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or the Company and reimbursed by the Fund
pursuant to the Investor C/B Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor C Shares. Any such excess expenses
may be recovered in future years, so long as the Investor C/B Plans are in
effect. Because there is no requirement under the Investor C/B Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor C/B Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor C/B Plans or in connection with contingent deferred sales charges,
if for any reason the Investor C/B Plans are terminated, the Directors will
consider at that time the manner in which to treat such expenses. There were no
unreimbursed expenses incurred under the Investor B Distribution Plans in the
previous year to be carried over to the current year from August 1, 2000 to
August 1, 2001.
The Funds in the Nations Funds Family participate in joint distribution
activities with other Funds in the Nations Funds Family. The fees paid under
each Investor B Distribution Plan adopted by a Fund may be used to finance the
distribution of the shares of other Funds in the Nations Funds Family. Such
distribution costs are allocated based on the relative net asset size of the
respective Funds.
During the fiscal period ended March 31, 2000, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor B Shares of the Non-Money Market Funds of NFI, NFT, NR: $10,145,346 and
$3,851,490, respectively. Of these amounts, the prior distributor retained $0
and $0, respectively.
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<PAGE>
Shareholder Administration Plan for Investor B and Investor C Shares of
-----------------------------------------------------------------------
NR's Money Market Funds
-----------------------
The Trustees of NR have approved an Administration Plan
("Administration Plan") relating to the Investor B and Investor C Shares of NR's
Money Market Funds. Pursuant to the Administration Plan, an NR Money Market Fund
may compensate administrative agents, of whom may include the Fund's
distributor, co-administrators and investment adviser, for providing certain
administration functions to a Fund. Payments under the Administration Plan will
be calculated at a rate computed monthly in the manner set forth in the
applicable Fund's then current prospectus, at an annual rate of up to 0.10% of
the average daily net asset value of the Investor B Shares or Investor C Shares
of such Fund.
Daily Shares
------------
The Directors/Trustees have approved a Distribution Plan (the "Daily
Distribution Plan") with respect to Daily Shares of the Money Market Funds.
Pursuant to the Daily Distribution Plan, a Money Market Fund may compensate or
reimburse the Distributor for any activities or expenses primarily intended to
result in the sale of the Fund's Daily Shares, including for sales related
services provided by banks, broker/dealers or other financial institutions that
have entered into a Sales Support Agreement relating to the Daily Shares with
the Distributor ("Selling Agents"). Payments under a Fund's Daily Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Board of Directors provided that the annual rate may not exceed
0.45% of the average daily net asset value of each Money Market Fund's Daily
Shares (0.35% of the average daily net asset value of each NR Money Market
Fund's Daily Shares).
The fees payable under the Daily Distribution Plan are used primarily
to compensate or reimburse the Distributor for distribution services provided by
it, and related expenses incurred, including payments by the Distributor to
compensate or reimburse Selling Agents, for sales support services provided, and
related expenses incurred, by such Selling Agents. Payments under the Daily
Distribution Plan may be made with respect to preparation, printing and
distribution of prospectuses, sales literature and advertising materials by the
Distributor or, as applicable, Selling Agents, attributable to distribution or
sales support activities, respectively, commissions, incentive compensation or
other compensation to, and expenses of, account executives or other employees of
the Distributor or Selling Agents, attributable to distribution or sales support
activities, respectively; overhead and other office expenses of the Distributor
relating to the foregoing (which may be calculated as a carrying charge in the
Distributor's or Selling Agents' unreimbursed expenses), incurred in connection
with distribution or sales support activities. The overhead and other office
expenses referenced above may include, without limitation, (i) the expenses of
operating the Distributor's or Selling Agents' offices in connection with the
sale of Fund shares, including lease costs, the salaries and employee benefit
costs of administrative operations and support personnel, utility costs,
communication costs and the costs of stationery and supplies, (ii) the costs of
client sales seminars and travel related to distribution and sales support
activities, and (iii) other expenses relating to distribution and sales support
activities.
In addition, the Directors have approved a Shareholder Servicing Plan
with respect to Daily Shares of the Money Market Funds (the "Daily Servicing
Plan"). Pursuant to the Daily Servicing Plan, a Fund may compensate or reimburse
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Company ("Servicing Agents") for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. Payments under
the Daily Servicing Plan will be calculated daily and paid monthly at a rate or
rates set from time to time by the Board of Directors, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Daily
Shares of the Money Market Funds.
The fees payable under the Daily Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Daily Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Daily Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Daily Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Daily Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding
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<PAGE>
shareholder communications from the Company (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to Customers; (ix) forwarding to Customers proxy statements and
proxies containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the Company may reasonably request to
the extent such Servicing Agent is permitted to do so under applicable statutes,
rules or regulations.
The fees payable under the Daily Distribution Plan and Daily Servicing
Plan (together, the "Daily Plans") are treated by the Funds as an expense in the
year they are accrued. At any given time, a Selling Agent and/or Servicing Agent
may incur expenses in connection with services provided pursuant to its
agreements with the Distributor under the Daily Plans which exceed the total of
(i) the payments made to the Selling Agents and Servicing Agents by the
Distributor or the Company and reimbursed by the Fund pursuant to the Daily
Plans, and (ii) the proceeds of contingent deferred sales charges paid to the
Distributor and reallowed to the Selling Agent, upon the redemption of their
Customers' Daily Shares. Any such excess expenses may be recovered in future
years, so long as the Daily Plans are in effect. Because there is no requirement
under the Daily Plans that the Distributor be paid or the Selling Agents and
Servicing Agents be compensated or reimbursed for all their expenses or any
requirement that the Daily Plans be continued from year to year, such excess
amount, if any, does not constitute a liability to a Fund or the Distributor.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Daily Plans or in connection with
contingent deferred sales charges, if for any reason the Daily Plans are
terminated, the Directors will consider at that time the manner in which to
treat such expenses. There were no unreimbursed expenses incurred under the
Daily Distribution Plans in the previous year to be carried over to the current
year from August 1, 2000 to August 1, 2001.
The Funds in the Nations Funds Family participate in joint distribution
activities with other Funds in the Nations Funds Family. The fees paid under
each Daily Distribution Plan adopted by a Fund may be used to finance the
distribution of the shares of other Funds in the Nations Funds Family. Such
distribution costs are allocated based on the relative net asset size of the
respective Funds.
During the fiscal period ended March 31, 2000, the Distributor received
the following amounts from Rule 12b-1 fees in connection with Daily Shares of
the Money Market Funds: $0 and $0, respectively. Of these amounts, the prior
Distributor retained $0 and $0, respectively.
Marsico Shares of the Prime Fund.
---------------------------------
In addition, the Directors have approved a Shareholder Servicing Plan
with respect to the Marsico Shares of the Prime Fund (the "Marsico Servicing
Plan"). Pursuant to the Marsico Servicing Plan, a Fund may compensate or
reimburse banks, broker/dealers or other financial institutions that have
entered into a Shareholder Servicing Agreement with the Company ("Servicing
Agents") for certain activities or expenses of the Servicing Agents in
connection with shareholder services that are provided by the Servicing Agents.
Payments under the Marsico Servicing Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Board of Directors,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Marsico Shares of the Prime Fund.
The fees payable under the Marsico Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for such Marsico Shares from Customers and
transmitting promptly net purchase and redemption orders to the Distributor or
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in such Marsico Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in such Marsico Shares; (v) arranging for bank
wires; (vi) responding to Customers' inquiries concerning their investment in
such Marsico Shares; (vii) providing sub-accounting with respect to such Daily
Shares beneficially owned by Customers or providing the information to us
necessary for sub-accounting; (viii) if required by law, forwarding shareholder
communications from the Company (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding the Daily Servicing Plan or related
agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as the
129
<PAGE>
Company may reasonably request to the extent such Servicing Agent is permitted
to do so under applicable statutes, rules or regulations.
During the fiscal period ended March 31, 2000, the Servicing Agents
received the following amounts from Rule 12b-1 fees in connection with the
Marsico Shares of the Prime Fund: $0 and $0 respectively. Of these amounts, the
Servicing Agents retained $0 and $0, respectively.
Information Applicable to Investor A, Investor B, Investor C and Daily
Shares.
The Investor A Plan, the Money Market Investor A Servicing Plan, the
Investor B/C Plan, the Investor B/C Servicing Plan, the Investor C Plan, the
Daily Distribution Plan, the Daily Servicing Plan and the Investor C/B Servicing
Plan (each a "Plan" and collectively the "Plans") may only be used for the
purposes specified above and as stated in each such Plan. Compensation payable
to Selling Agents or Servicing Agents for shareholder support services under the
Investor A Plan, the Money Market Investor A Servicing Plan, the Investor B/C
Servicing Plan, Daily Servicing Plan and the Investor C/B Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Conduct governing receipt by NASD members of shareholder
servicing plan fees from registered investment companies (the "NASD Servicing
Plan Rule"), which became effective on July 7, 1993. Such compensation shall
only be paid for services determined to be permissible under the NASD Servicing
Plan Rule.
Each Plan requires the officers of the Company or the Distributor to
provide the Board of Directors at least quarterly with a written report of the
amounts expended pursuant to the Plan and the purposes for which such
expenditures were made. The Board of Directors reviews these reports in
connection with its decisions with respect to the Plans.
As required by Rule 12b-1 under the 1940 Act, each Plan was approved by
the Board of Directors, including a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Directors") on February 6, 1997, with
respect to the Investor C Shares of the Money Market Funds, on March 22, 1991,
with respect to the Investor A Shares of the Equity Income and Government
Securities Funds, on June 24, 1992 with respect to the Investor A Shares of the
International Equity Fund, and on March 19, 1992, with respect to the Investor C
Shares of the Non-Money Market Funds. Additionally, each Plan with respect to
the Investor B Shares of the Money Market Funds and with respect to the Investor
B Shares of all the Non-Money Market Funds was approved by the Board of
Directors, including a majority of the Qualified Directors, on February 3, 1993.
The Plan with respect to the Investor C Shares of the Money Market Funds was
initially approved on August 4, 1993. The Plan with respect to the Daily Shares
of the Money Market Funds was initially approved on August 4, 1993. The Plans
continue in effect as long as such continuance is specifically approved at least
annually by the Board of Directors, including a majority of the Qualified
Directors. On October 12, 1996, the Board of Directors (including a majority of
the Qualified Directors) voted to continue each Plan for an additional one year
period.
In approving the Plans in accordance with the requirements of Rule
12b-1, the directors considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor B Shares and the holders of such
shares. The Investor A Plan was approved by the Shareholders of the Investor A
Shares of each of the Funds except the International Equity Fund on September 6,
1991, and the Investor B/C Plan applicable to Investor C Shares of the
International Equity and Equity Income Funds and the Investor A Plan applicable
to Investor A Shares of the International Equity Fund were approved on September
22, 1992 by the Investor C Shareholders of the respective International Equity
and Equity Income Funds with respect to the Investor B/C Plan and by the
Investor A Shareholders of the International Equity Fund with respect to the
Investor A Plan. The Plans applicable to the Investor B Shares of the Money
Market Funds and Investor B Shares of the Non-Money Market Funds were approved
by such Funds' initial shareholder of Investor B and Investor B Shares.
The Investor A Shares' Plans with respect to the Money Market Funds
originally became effective on December 4, 1989, and were amended February
12,1990, March 19, 1992 and February 3, 1993. The Investor A Shares' Plan with
respect to the Equity Income and Government Securities Funds became effective on
March 22, 1991, and was amended March 19, 1992. The Investor A Shares' Plan with
respect to the International Equity Fund became effective September 6, 1991 and
was amended March 19, 1992 and February 3, 1993.
130
<PAGE>
The Investor A Plan, Investor B/C Plan and Investor C/B Plan may be
terminated with respect to their respective shares by vote of a majority of the
Qualified Directors, or by vote of a majority of the holders of the outstanding
voting securities of the Investor A, Investor B or Investor C, as appropriate.
Any change in such a Plan that would increase materially the distribution
expenses paid by the Investor A, Investor B or Investor C Shares requires
shareholder approval; otherwise, each Plan may be amended by the directors,
including a majority of the Qualified Directors, by vote cast in person at a
meeting called for the purpose of voting upon such amendment. The Money Market
Investor A Servicing Plan, the Investor B/C Servicing Plan and the Investor C/N
Servicing Plan may be terminated by a vote of a majority of the Qualified
Directors. As long as a Plan is in effect, the selection or nomination of the
Qualified Directors is committed to the discretion of the Qualified Directors.
Conflict of interest restrictions may apply to the receipt by Selling and/or
Servicing Agents of compensation from the Company in connection with the
investment of fiduciary assets in Investor Shares. Selling and/or Servicing
Agents, including banks regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance Corporation, and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
Fees Paid Pursuant to Shareholder Servicing/Distribution Plans
--------------------------------------------------------------
Net Fees Paid*
--------------
<TABLE>
<CAPTION>
Investor A Shares
12B-1 Shareholder Svc TOTAL Waiver
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Fund $ 1,672,484 $ 668,993 $2,341,477 -
Treasury Fund 2,710,528 1,084,211 3,794,740 -
Equity Income Fund 108,190 - 108,190 -
Intl Equity Fund 74,721 - 74,721 -
Govt Securities Fund 150,050 - 150,050 -
Small Company Growth Fund 388,535 - 388,535 -
US Govt Bond Fund 6,476 - 6,476 -
Intl Growth Fund 70,998 - 70,998 -
Intl Value Fund 199,028 - 199,028 -
Emerging Markets Fund 4,353 - 4,353 -
Value Fund 311,509 - 311,509 -
Capital Growth Fund 133,162 - 133,162 -
MidCap Growth Fund 42,414 - 42,414 -
LargeCap Index Fund 54,104 - 54,104 -
Managed Index Fund 131,387 - 131,387 -
SmallCap Index Fund 22,493 - 22,493 -
Managed Value Index Fund 5,776 - 5,776 -
Managed SmallCap Value Index Fund 4,633 - 4,633 -
Aggressive Growth Fund 150,348 - 150,348 -
Strategic Growth Fund 2,678 - 2,678 -
Asset Allocation Fund* 167,959 - 167,959 -
Convertible Securities Fund* 719,220 - 719,220 -
California Municipal Bond Fund* 295,550 - 295,550 63,144
Intermediate Bond Fund* 105,989 - 105,989 -
Blue Chip Fund* 817,140 - 817,140 -
Marsico Focused Equities Fund 999,651 - 999,651 -
Marsico Growth & Income Fund 209,938 - 209,938 -
Balanced Assets Fund 41,039 - 41,039 -
Short-Intermediate Govt Fund 104,559 - 104,559 25,529
Short-Term Income Fund 32,070 - 32,070 2,977
Strategic Income Fund 80,648 - 80,648 -
Bond Fund 63,627 - 63,627 6,151
Municipal Income Fund 73,014 - 73,014 17,667
Short-Term Municipal Income Fund 67,620 - 67,620 6,807
Intermediate Municipal Bond Fund 45,056 - 45,056 3,908
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
Investor A Shares
12B-1 Shareholder Svc TOTAL Waiver
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FL Int Municipal Bond Fund 27,434 - 27,434 2,667
FL Municipal Bond Fund 129,277 - 129,277 12,657
GA Int Municipal Bond Fund 37,333 - 37,333 3,838
GA Municipal Bond Fund 4,884 - 4,884 480
MD Int Municipal Bond Fund 38,202 - 38,202 3,441
MD Municipal Bond Fund 4,042 - 4,042 367
NC Int Municipal Bond Fund 22,361 - 22,361 2,038
NC Municipal Bond Fund 2,642 - 2,642 231
SC Int Municipal Bond Fund 43,502 - 43,502 4,007
SC Municipal Bond Fund 2,536 - 2,536 226
TN Int Municipal Bond Fund 19,628 - 19,628 1,835
TN Municipal Bond Fund 1,900 - 1,900 121
TX Int Municipal Bond Fund 15,915 - 15,915 1,418
TX Municipal Bond Fund 801 - 801 76
VA Int Municipal Bond Fund 114,332 - 114,332 10,814
VA Municipal Bond Fund 1,732 - 1,732 186
Govt Money Market Fund 49,250 19,700 68,949 -
Tax Exempt Fund 114,186 45,674 159,860 -
-------- ------- -------- -------
</TABLE>
*The amounts shown for this Fund represent fees for the fiscal period from May
16, 1999 to March 31, 2000.
Fees Paid Pursuant to Distribution Plans
----------------------------------------
Investor B Shares - Money Market Funds
Investor C Shares - Non-Money Market Funds
<TABLE>
<CAPTION>
Net Fees Paid
-------------
Shareholder Shareholder
12B-1 Services Admin TOTAL Waiver
-------------- ----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Prime Fund $1,715,029 - - $1,715,029 682,567
Treasury Fund 565,302 - - 565,302 224,590
Equity Income Fund 38,011 12,670 - 50,682 -
Intl Equity Fund 7,588 2,529 - 10,117 -
Govt Securities Fund 3,069 1,023 - 4,092 -
Small Company Growth Fund 20,703 6,901 - 27,604 -
US Govt Bond Fund 8,800 2,933 - 11,734 -
Intl Growth Fund 3,317 1,106 - 4,423 -
Intl Value Fund 37,611 12,537 - 50,148 -
Emerging Markets Fund 850 283 - 1,133 -
Value Fund 83,752 27,917 - 111,669 -
Capital Growth Fund 31,931 10,644 - 42,575 -
MidCap Growth Fund 13,145 4,382 - 17,527 -
Aggressive Growth Fund 13,193 4,398 - 17,591 -
Strategic Growth Fund 3,173 1,058 - 4,230 -
Cash Reserves 1,272 424 170 1,866 -
Money Market Reserves 56 19 7 81 -
Treasury Reserves - - - - -
Government Reserves 802 267 107 1,176 -
Municipal Reserves - - - - -
California Tax-Exempt - - - - -
Reserves*
Asset Allocation Fund* 13,749 4,583 - 18,332 -
Convertible Securities Fund* 15,910 5,303 - 21,213 -
California Municipal Bond 1,249 416 - 1,666 -
Fund*
Intermediate Bond Fund* 513 171 - 684 -
Blue Chip Fund* 87,395 29,132 - 116,527 -
Marsico Focused Equities Fund 690,902 230,301 - 921,203 -
Marsico Growth & -
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
Net Fees Paid
-------------
Shareholder Shareholder
12B-1 Services Admin TOTAL Waiver
-------------- ----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Income Fund 109,117 36,372 - 145,490
Balanced Assets Fund 11,252 3,751 - 15,003 -
Short-Intermediate Govt Fund
6,540 2,180 - 8,720 602
Short-Term Income Fund 8,841 2,947 - 11,788 -
Strategic Income Fund 11,285 3,762 - 15,047 -
Bond Fund 7,548 2,516 - 10,065 -
Municipal Income Fund 13,303 4,434 - 17,737 -
Short-Term Municipal Income 16,821 5,607 - 22,427 -
Fund
Intermediate Municipal Bond 10,433 3,478 - 13,911 -
Fund
FL Int Municipal Bond Fund 8,304 2,768 - 11,072 -
FL Municipal Bond Fund 167 56 - 223 -
GA Int Municipal Bond Fund 6,382 2,127 - 8,509 -
GA Municipal Bond Fund 87 29 - 117 -
MD Int Municipal Bond Fund 3,493 1,164 - 4,658 -
MD Municipal Bond Fund 1,196 399 - 1,595 -
NC Int Municipal Bond Fund 693 231 - 924 -
NC Municipal Bond Fund 127 42 - 170 -
SC Int Municipal Bond Fund 22,874 7,625 - 30,499 -
SC Municipal Bond Fund 537 179 - 716 -
TN Int Municipal Bond Fund 237 79 - 317 -
TN Municipal Bond Fund 742 247 - 989 -
TX Int Municipal Bond Fund 15 5 - 20 -
TX Municipal Bond Fund 615 205 - 820 -
VA Int Municipal Bond Fund 6,415 2,138 - 8,553 -
VA Municipal Bond Fund 17 6 - 22 -
Govt Money Market Fund 202,290 - - 202,290 80,223
Tax Exempt Fund 473,505 - - 473,505 258,175
------------ ------------- ------------ ------------ -------------
</TABLE>
*The amounts shown for this Fund represent fees for the fiscal period from May
16, 1999 to March 31, 2000.
Investor B Shares - Non-Money Market Funds
Investor C Shares - Money Market Funds
<TABLE>
<CAPTION>
Net Fees Paid
-------------
Shareholder Shareholder
12B-1 Services Admin TOTAL Waiver
--------------- --------------------- -------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Prime Fund $30,438 - - $30,438 -
Treasury Fund 482 - - 482 -
Equity Income Fund 720,138 240,046 - 960,184 -
Intl Equity Fund 221,173 73,724 - 294,898 -
Govt Securities Fund 212,665 70,888 - 283,553 18,800
Small Company Growth Fund 57,380 19,127 - 76,507 -
US Govt Bond Fund 55,266 18,422 - 73,688 4,484
Intl Growth Fund 9,418 3,139 - 12,558 -
Intl Value Fund 150,656 50,219 - 200,875 -
Emerging Markets Fund 17,184 5,728 - 22,911 -
Value Fund 1,114,536 371,512 - 1,486,048 -
Capital Growth Fund 512,221 170,740 - 682,962 -
MidCap Growth Fund 279,691 93,230 - 372,921 -
Aggressive Growth Fund 373,666 124,555 - 498,222 -
Strategic Growth Fund 6,449 2,150 - 8,599 -
Cash Reserves 23,803 7,934 3,174 34,911 -
Money Market Reserves 4,176 1,392 557 6,125 -
Treasury Reserves 269 90 36 394 -
Government Reserves 339 113 45 497 -
Municipal Reserves 130 43 17 191 -
California Tax-Exempt Reserves* - - - - -
Asset Allocation Fund* 546,863 182,288 - 729,151 -
Convertible Securities Fund* 42,323 14,108 - 56,431 -
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
Net Fees Paid
-------------
Shareholder Shareholder
12B-1 Services Admin TOTAL Waiver
--------------- --------------------- -------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
California Municipal Bond Fund* 18,452 6,151 - 24,603 4,356
Intermediate Bond Fund* 715 238 - 954 -
Blue Chip Fund* 282,211 94,070 - 376,282 -
Marsico Focused Equities Fund 4,425,219 1,475,073 - 5,900,292 -
Marsico Growth & Income Fund 1,343,397 447,799 - 1,791,195 -
Balanced Assets Fund 498,560 166,187 - 664,747 -
Short-Intermediate Govt Fund 65,172 21,724 - 86,896 8,172
Short-Term Income Fund 14,338 4,779 - 19,118 17,170
Strategic Income Fund 448,606 149,535 - 598,141 41,007
Bond Fund 41,424 13,808 - 55,231 5,039
Municipal Income Fund 78,840 26,280 - 105,121 8,068
Short-Term Municipal Income Fund 35,411 11,804 - 47,214 43,160
Intermediate Municipal Bond Fund 19,849 6,616 - 26,466 2,341
Fl Int Municipal Bond Fund 32,809 10,936 - 43,745 4,114
FL Municipal Bond Fund 96,262 32,087 - 128,350 9,078
GA Int Municipal Bond Fund 51,680 17,227 - 68,907 6,558
GA Municipal Bond Fund 76,653 25,551 - 102,204 6,895
MD Int Municipal Bond Fund 41,243 13,748 - 54,991 4,969
MD Municipal Bond Fund 113,918 37,973 - 151,890 10,028
NC Int Municipal Bond Fund 40,098 13,366 - 53,464 5,252
NC Municipal Bond Fund 159,976 53,325 - 213,301 14,731
SC Int Municipal Bond Fund 56,668 18,889 - 75,558 7,107
SC Municipal Bond Fund 68,988 22,996 - 91,984 6,380
TN Int Municipal Bond Fund 18,615 6,205 - 24,820 2,419
TN Municipal Bond Fund 30,235 10,078 - 40,313 2,754
TX Int Municipal Bond Fund 14,348 4,783 - 19,131 1,743
TX Municipal Bond Fund 43,765 14,588 - 58,353 4,042
VA Int Municipal Bond Fund 65,259 21,753 - 87,013 8,125
VA Municipal Bond Fund 84,589 28,196 - 112,785 7,929
Govt Money Market Fund 943 - - 943 -
Tax Exempt Fund 621 - - 621 -
--------------- ----------------- ------------------ ---------------- ------------------
</TABLE>
*The amounts shown for this Fund represent fees for the fiscal period from May
16, 1999 to March 31, 2000.
Daily Shares - Money Market Funds
---------------------------------
<TABLE>
<CAPTION>
Net Fees Paid
-------------
12B-1 Shareholder Svc TOTAL Waiver
---------------- ------------------------ ----------------------- ------------------
<S> <C> <C> <C> <C>
Prime Fund $4,557,055 $4,557,055 $9,114,111 $3,621,074
Treasury Fund 417,493 417,493 834,985 330,825
Govt Money Market Fund 82,572 82,572 165,144 65,569
Tax Exempt Fund 453,223 453,223 906,446 360,539
Cash Reserves 19,036,950 38,073,899 -
19,036,950
Money Market Reserves 9,295 9,295 18,589 -
Treasury Reserves 1,867,151 1,867,151 3,734,301 -
Government Reserves 396,289 396,289 792,577 -
Municipal Reserves 804,807 804,807 1,609,613 -
CA Tax-Exempt Reserves 1,519,402 1,519,402 3,038,803 -
---------------- ------------------------ ----------------------- ------------------
</TABLE>
Marsico Shares - Money Market Funds
-----------------------------------
<TABLE>
<CAPTION>
Net Fees Paid
-------------
Shareholder
Servicing Fees Waiver
-------------------------------- ----------------------------
<S> <C> <C>
Prime Fund $53,017 $-
-------------------------------- ----------------------------
</TABLE>
134
<PAGE>
Fees Paid Pursuant To The Administration Plan--Primary B Shares
---------------------------------------------------------------
<TABLE>
<CAPTION>
Net Shareholder Net Shareholder Net Fees
Servicing Fees Admin Fees Paid Waiver
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Prime $56,340 - 56,340 $ -
Treasury 36,008 - 36,008 -
Managed Index - 24 24 5
Short-Intermediate Govt - 906 906 477
Govt Money Market 2,652 - 2,652 -
Tax Exempt 24,324 - 24,324 -
------------------- ------------------ ------------------- ------------------
</TABLE>
Primary B Shares - Money Market Funds
-------------------------------------
As stated in the Prospectuses for the Money Market Funds' Primary B
Shares NFI and NFT have separate Shareholder Servicing Plans. Pursuant to the
Shareholder Servicing Plans, NFI and NFT each have entered into separate
agreements with certain banks pertaining to the provision of administrative
services to their customers who may from time to time own of record or
beneficially Primary B Shares ("Customers") in consideration for the payment of
up to 0.25% (on an annualized basis) of the net asset value of such shares. Such
services may include: (i) aggregating and processing purchase, exchange and
redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders with the Distributor or the transfer
agents; (ii) providing Customers with a service that invests the assets of their
accounts in Primary B Shares pursuant to specific or pre-authorized
instructions; (iii) processing dividend and distribution payments from the
Company on behalf of Customers; (iv) providing information periodically to
Customers showing their positions in Primary B Shares; (v) arranging for bank
wires; (vi) responding to Customer inquiries concerning their investment in
Primary B Shares; (vii) providing sub-accounting with respect to Primary B
Shares beneficially owned by Customers or the information necessary for
sub-accounting; (viii) if required by law, forwarding shareholder communications
(such as proxies, shareholder reports annual and semi-annual financial
statements and dividend, distribution and tax notices) to Customers; (ix)
forwarding to Customers proxy statements and proxies containing any proposals
regarding the Shareholder Servicing Agreements or Shareholder Serving Plan; and
(x) providing such other similar services as may reasonably be requested to the
extent permitted under applicable statutes, rules, or regulations.
Such plan shall continue in effect as long as the Board of
Directors/Trustees, including a majority of the Qualified Directors,
specifically approves the plan at least annually.
Primary B Shares - Non-Money Market Funds
-----------------------------------------
As stated in the Prospectus for the Non-Money Market Funds' Primary B
Shares, NFT has a separate Shareholder Administration Plan (the "Administration
Plan") with respect to such shares. Pursuant to the Administration Plan, NFT may
enter into agreements ("Administration Agreements") with broker/dealers, banks
and other financial institutions that are dealers of record or holders of record
or which have a servicing relationship with the beneficial owners of Non-Money
Market Fund Primary B Shares ("Servicing Agents"). The Administration Plan
provides that pursuant to the Administration Agreements, Servicing Agents shall
provide the shareholder support services as set forth therein to their customers
who may from time to time own of record or beneficially Primary B Shares
("Customers") in consideration for the payment of up to 0.60% (on an annualized
basis) of the net asset value of such shares. Such services may include: (i)
aggregating and processing purchase, exchange and redemption requests for
Primary B Shares from Customers and transmitting promptly net purchase and
redemption orders with the Distributor or the transfer agents; (ii) providing
Customers with a service that invests the assets of their accounts in Primary B
Shares pursuant to specific or pre-authorized instructions; (iii) processing
dividend and distribution payments from the Company on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Primary B Shares; (v) arranging for bank wires; (vi) responding to Customer
inquiries concerning their investment in Primary B Shares; (vii) providing
sub-accounting with respect to Primary B Shares beneficially owned by Customers
or the information necessary for sub-accounting; (viii) if required by law,
forwarding shareholder communications (such as proxies, shareholder reports
annual and semi-annual financial statements and dividend, distribution and tax
notices) to Customers; (ix) forwarding to Customers proxy statements and proxies
containing any proposals regarding an Administration Agreement; (x) employee
benefit plan recordkeeping,
135
<PAGE>
administration, custody and trustee services; (xi) general shareholder liaison
services and (xii) providing such other similar services as may reasonably be
requested to the extent permitted under applicable statutes, rules, or
regulations.
Liquidity Class
---------------
NR has adopted a distribution plan (the "Liquidity Class Distribution
Plan" or the "Distribution Plan") for the Liquidity Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of NR
and by a majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of NR and who have no direct or indirect financial interest in
the operation of the plan or in any agreements thereunder (the "Qualified
Trustees"). The Distribution Plan requires that quarterly written reports of
amounts spent under such Distribution Plan and the purposes of such expenditures
be furnished to and reviewed by the Trustees. The Liquidity Class Plan may not
be amended to increase materially the amount which may be spent thereunder
without approval by a majority of the outstanding Liquidity Class Shares of NR.
All material amendments of the Distribution Plan will require approval by a
majority of the Trustees and of the Qualified Trustees.
Liquidity Class Shares of each Fund bear the costs of their
distribution fees as provided in a budget approved annually and reviewed
quarterly by the Trustees of NR, including those Trustees who are not interested
persons and have no financial interest in the Liquidity Class Plan or any
related agreements. The budget will be in an amount not to exceed .30% of the
average daily net assets of Liquidity Class Shares of each Fund and the
Distributor will be reimbursed only for its actual expenses incurred during a
fiscal year. The Distributor will also receive an additional fee of up to .30%
of the average daily net assets of Liquidity Class Shares of each Fund (.35%
with respect to Treasury Reserves) which the Distributor can use to compensate
certain financial institutions which provide administrative and/or distribution
related services to Liquidity Class shareholders. These services may include
establishing and maintaining customer accounts and records; aggregating and
processing purchase and redemption requests from customers; placing net purchase
and redemption orders with the Distributor or transfer agent; automatically
investing customer account cash balances; providing periodic statements to
customers; arranging for wires; answering customer inquiries concerning their
investments; assisting customers in changing dividend options, account
designations, and addresses; performing sub-accounting functions; processing
dividend payments from a Trust on behalf of customers; and forwarding
shareholder communications from NR (such as proxies, shareholder reports, and
dividend distribution, and tax notices) to these customers with respect to
investments in NR. It is possible that an institution may offer different
classes of Shares to its customers and thus receive different compensation with
respect to different classes of Shares.
In addition, the Trustees have approved a shareholder servicing plan
with respect to Liquidity Class Shares of the Funds (the "Liquidity Class
Servicing Plan" or the "Servicing Plan"). Pursuant to the Servicing Plan, a Fund
may compensate or reimburse banks, broker/dealers or other financial
institutions that have entered into Shareholder Servicing Agreements with NR
("Servicing Agents") for certain activities or expenses of the Servicing Agents
in connection with shareholder services that are provided by the Servicing
Agents. The Servicing Plan provides that payments under the Servicing Plan will
be calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Trustees, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Liquidity Class Shares of each Fund.
The fees payable under the Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents under the Servicing Plan may include: (i)
aggregating and processing purchase and redemption requests for shares from
customers and transmitting promptly net purchase and redemption orders to the
Distributor or transfer agent; (ii) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from NR on behalf of customers; (iv) providing information periodically to
customers showing their positions in shares; (v) arranging for bank wires; (vi)
responding to customers' inquiries concerning their investment in shares; (vii)
providing sub-accounting with respect to shares beneficially owned by customers
or providing the information to NR necessary for sub-accounting; (viii) if
required by law, forwarding shareholder communications from NR (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
136
<PAGE>
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plan or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as NR may reasonably request to the extent
such Servicing Agents are permitted to do so under applicable statutes, rules or
regulations.
The fees payable under the Liquidity Class Distribution Plan and
Liquidity Class Servicing Plan (together, the "Liquidity Class Plans") are
treated by the Funds as an expense in the year they are accrued. At any given
time, a Selling Agent and/or Servicing Agent may incur expenses in connection
with services provided pursuant to its agreements with the Distributor and/or NR
under the Liquidity Class Plans which exceed the total of the payments made to
the Selling Agents and/or Servicing Agents by the Distributor or NR and
reimbursed by the Funds pursuant to the Liquidity Class Plans. Any such excess
expenses may be recovered in future years, so long as the Liquidity Class Plans
are in effect. Because there is no requirement under the Liquidity Class Plans
that the Distributor be paid or the Selling Agents and Servicing Agents be
compensated or reimbursed for all their expenses or any requirement that the
Liquidity Class Plans be continued from year to year, such excess amount, if
any, does not constitute a liability to a Fund, or the Distributor, or NR.
Although there is no legal obligation for the Fund to pay expenses incurred by
the Distributor, a Selling Agent or a Servicing Agent in excess of payments
previously made to the Distributor under the Liquidity Class Plans if for any
reason the Liquidity Class Plans are terminated, the Trustees will consider at
that time the manner in which to treat such expenses.
For the fiscal year ended March 31, 2000, the Funds paid 12b-1 fees to
Stephens, and shareholder servicing fees to Bank of America for Liquidity Class
Shares in the following amounts:
<TABLE>
<CAPTION>
Liquidity Net 12b-1 Fees Net Shareholder
Class Shares Paid Servicing Plan Fees Paid Net Fees Paid Net Fees Waived
------------ to Stephens to Bank of America
------------------ ---------------------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Cash Reserves $ - $2,542,502 $2,542,502 $11,811,537
Money Market Reserves - 199,108 199,108 927,035
Treasury Reserves - 462,405 462,405 2,304,825
Government Reserves - 167,464 167,464 779,854
Municipal Reserves - 164,582 164,582 760,161
Cal Tax-Exempt Reserves - - - -
------------------ ------------------- ---------------------- -----------------------
</TABLE>
Such distribution expenses for each Fund were attributable to the cost of
marketing the Funds.
Market Class
------------
NR has adopted a distribution plan (the "Market Class Distribution
Plan" or the "Distribution Plan") for the Market Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of NR
and by a majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of NR and who have no direct or indirect financial interest in
the operation of the plan or in any agreements thereunder (the "Qualified
Trustees"). The Distribution Plan requires that quarterly written reports of
amounts spent under such Distribution Plan and the purposes of such expenditures
be furnished to and reviewed by the Trustees, and the Distribution Plan may not
be amended to increase materially the amount which may be spent thereunder
without approval by a majority of the outstanding Market Class Shares of NR. All
material amendments of the Distribution Plan will require approval by a majority
of the Trustees and of the Qualified Trustees.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse
the Distributor for any activities or expenses primarily intended to result in
the sale of a Fund's Market Class Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Market Class Shares with
the Distributor ("Selling Agents"). Payments under a Fund's Market Class Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Board of Trustees provided that the annual rate may not exceed 0.20%
of the average daily net asset value of each Fund's Market Class Shares.
137
<PAGE>
The fees payable under the Market Class Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Market Class Plan may be made with respect to (i)
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively; (ii)
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of the Distributor 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 in the Distributor's or Selling Agents' 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 the
Distributor's or Selling Agents' offices in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefit costs of
administrative, operations and support personnel, utility costs, communication
costs and the costs of stationery and supplies, (ii) the costs of client sales
seminars and travel related to distribution and sales support activities, and
(iii) other expenses relating to distribution and sales support activities.
In addition, the Trustees have approved a shareholder servicing plan
with respect to Market Class Shares of the Funds (the "Market Class Servicing
Plan" or the Servicing Plan"). Pursuant to the Servicing Plan, a Fund may
compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into Shareholder Servicing Agreements with NR for certain
activities or expenses of the Servicing Agents in connection with shareholder
services that are provided by the Servicing Agents. The Servicing Plan provides
that payments under the Servicing Plan will be paid at a rate or rates set from
time to time by the Board of Trustees, provided that the annual rate may not
exceed 0.25% of the average daily net asset value of the Market Class Shares
beneficially owned by the Servicing Agents' clients.
The fees payable under the Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents under the Servicing Plan may include: (i)
aggregating and processing purchase and redemption requests for shares from
customers and transmitting promptly net purchase and redemption orders to the
Distributor or transfer agent; (ii) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from NR on behalf of customers; (iv) providing information periodically to
customers showing their positions in shares; (v) arranging for bank wires; (vi)
responding to customers' inquiries concerning their investment in shares; (vii)
providing sub-accounting with respect to shares beneficially owned by customers
or providing the information to NR necessary for sub-accounting; (viii) if
required by law, forwarding shareholder communications from NR (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plan or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as NR may reasonably request to the extent
such Servicing Agents are permitted to do so under applicable statutes, rules or
regulations.
The shareholder servicing plan with respect to the Market Class
Distribution Plan and the Market Class Servicing Plan (collectively, the
"Plans") will continue in effect only so long as such continuance is approved at
least annually by (i) a majority of the Board of Trustees, and (ii) a majority
of the Qualified Trustees, pursuant to a vote cast in person at a meeting called
for the purpose of voting on the Plan. Each Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Shares of such Fund. All material amendments to a
Plan require the approval of a majority of the Board of Trustees and the
Qualified Trustees. The Plans require that quarterly written reports of the
amounts spent under the Plans and the purposes of such expenditures be furnished
to, and reviewed by, the Trustees.
138
<PAGE>
For the fiscal year ended March 31, 2000, the Funds paid 12b-1 fees to
Stephens, and shareholder servicing fees to Bank of America for Market Class
Shares in the following amounts:
<TABLE>
<CAPTION>
Net Shareholder
Servicing Plan Fees
Market Class Shares Net 12b-1 Fees Paid Paid to Bank of Net Fees Net Fees
------------------- to Stephens America Paid Waived
------------------ ----------------------- ------------- ----------------------
<S> <C> <C> <C>
Cash Reserves $4,441,326 $5,551,657 $9,992,983 $ -
Money Market Reserves 1,736,535 2,170,669 3,907,204 -
Treasury Reserves 2,793,986 3,492,483 6,286,469 -
Government Reserves 729,210 911,513 1,640,723 -
Municipal Reserves 304,966 381,207 686,173 -
Cal Tax-Exempt Reserves - - - -
------------------- ------------------- ---------------- ----------------------
</TABLE>
Adviser Class
-------------
Pursuant to Rule 12b-1 under the 1940 Act, NR has adopted a Shareholder
Servicing Plan for the Adviser Class Shares of each Fund (the "Adviser Class
Servicing Plan"). Under the Adviser Class Servicing Plan, NR may enter into
Shareholder Servicing Agreements with broker/dealers, banks and other financial
institutions ("Servicing Agents") pursuant to which the Servicing Agents will
provide shareholder support services to their customers who beneficially own
Adviser Class Shares in the Funds. The Adviser Class Servicing Plan permits NR
to pay Servicing Agents a fee not exceeding 0.25% of the average daily net asset
value of the Adviser Class Shares beneficially owned by the Servicing Agents'
clients.
The shareholder support services provided by Servicing Agents under the
Adviser Class Servicing Plan may include: (i) aggregating and processing
purchase and redemption requests for such Adviser Class Shares from customers
and transmitting promptly net purchase and redemption orders to the Distributor
or transfer agent; (ii) providing customers with a service that invests the
assets of their accounts in such Adviser Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from NR on behalf of customers; (iv) providing information periodically to
customers showing their positions in such Adviser Class Shares; (v) arranging
for bank wires; (vi) responding to customers' inquiries concerning their
investment in such Adviser Class Shares; (vii) providing sub-accounting with
respect to such Adviser Class Shares beneficially owned by customers or the
information necessary for sub-accounting; (viii) if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
customers; (ix) forwarding to customers proxy statements and proxies containing
any proposals regarding the Adviser Class Servicing Plan or related agreements;
(x) general shareholder liaison services; and (xi) providing such other similar
services as NR reasonably request to the extent the Servicing Agents are
permitted to do so under applicable statutes, rules or regulations.
The Adviser Class Servicing Plan also provides that to the extent any
portion of the fees payable under such Plan is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid pursuant to the Servicing Plan and in accordance with
Rule 12b-1 under the 1940 Act.
For the fiscal year ended March 31, 2000, the Funds paid 12b-1 fees to
Stephens, and shareholder servicing fees to Bank of America for Adviser Class
Shares in the following amounts:
<TABLE>
<CAPTION>
Net Shareholder
Servicing Plan Fees
Adviser Class Shares Paid to Bank of America Net Fees Waived
-------------------- ---------------------------- --------------------------
<S> <C> <C>
Cash Reserves $9,603,820 -
Money Market Reserves 361,134 -
Treasury Reserves 3,626,824 -
Government Reserves 959,621 -
Municipal Reserves 222,002 -
Cal Tax-Exempt Reserves 807,349 -
---------------------------- --------------------------
</TABLE>
139
<PAGE>
The Adviser Class Servicing Plan will continue in effect only so long
as such continuance is approved at least annually by (i) a majority of the Board
of Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a vote
cast in person at a meeting called for the purpose of voting on the Adviser
Class Servicing Plan. The Adviser Class Servicing Plan may not be amended to
increase materially the amount which may be spent thereunder without approval of
a majority of the outstanding Adviser Class Shares of such Fund. All material
amendments to the Adviser Class Servicing Plan require the approval of a
majority of the Board of Trustees and the Qualified Trustees. The Adviser Class
Servicing Plan requires that quarterly written reports of the amounts spent
under the Adviser Class Servicing Plan and the purposes of such expenditures be
furnished to, and reviewed by, the Trustees.
Trust Class
-----------
NR has adopted a Shareholder Administration Plan for Trust Class Shares
of each Fund (the "Trust Class Administration Plan"). Under the Trust Class
Administration Plan, NR may enter into Administration Agreements with
broker/dealers, banks and other financial institutions ("Servicing Agents")
pursuant to which the Servicing Agents will provide shareholder support services
to their customers who beneficially own Trust Class Shares in the Funds. The
Trust Class Administration Plan permits NR to pay Servicing Agents a fee not
exceeding 0.10% of the average daily net asset value of the Trust Class Shares
beneficially owned by the Servicing Agents' clients.
The shareholder support services provided by Servicing Agents under the
Trust Class Administration Plan may include: (i) aggregating and processing
purchase and redemption requests for such Trust Class Shares from customers and
transmitting promptly net purchase and redemption orders to the Distributor or
transfer agent; (ii) providing customers with a service that invests the assets
of their accounts in such Trust Class Shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from NR on behalf of customers; (iv) providing information periodically to
customers showing their positions in such Trust Class Shares; (v) arranging for
bank wires; (vi) responding to customers' inquiries concerning their investment
in such Trust Class Shares; (vii) providing sub-accounting with respect to such
Trust Class Shares beneficially owned by customers or the information necessary
for sub-accounting; (viii) if required by law, forwarding shareholder
communications (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to customers;
(ix) forwarding to customers proxy statements and proxies containing any
proposals regarding the Trust Class Servicing Plan or related agreements; (x)
general shareholder liaison services; and (xi) providing such other similar
services as NR reasonably request to the extent the Servicing Agents are
permitted to do so under applicable statutes, rules or regulations.
The Trust Class Administration Plan will continue in effect only so
long as such continuance is approved at least annually by (i) a majority of the
Board of Trustees, and (ii) a majority of the Qualified Trustees, pursuant to a
vote cast in person at a meeting called for the purpose of voting on the Trust
Class Administration Plan. The Trust Class Administration Plan may not be
amended to increase materially the amount which may be spent thereunder without
approval of a majority of the outstanding Trust Class Shares of such Fund. All
material amendments to the Trust Class Administration Plan require the approval
of a majority of the Board of Trustees and the Qualified Trustees. The Trust
Class Administration Plan requires that quarterly written reports of the amounts
spent under the Trust Class Administration Plan and the purposes of such
expenditures be furnished to, and reviewed by, the Trustees.
<TABLE>
<CAPTION>
Net Shareholder
Trust Class Shares Admin Fees Paid Net Fees Waived
------------------ --------------------------- ------------------------
<S> <C> <C>
Cash Reserves $1,454,825 -
Money Market Reserves - -
Treasury Reserves 513,999 -
Government Reserves 105,261 -
Municipal Reserves 447,225 -
Cal Tax-Exempt Reserves 310,446 -
--------------------------- ------------------------
</TABLE>
Shareholder Administration Plan for Institutional Shares
--------------------------------------------------------
The Trustees of NR have approved an Administration Plan
("Administration Plan") relating to the Institutional Shares of NR's Money
Market Funds. Pursuant to the Administration Plan, an NR Money Market Fund may
compensate administrative agents, of whom may include the Fund's distributor,
co-administrators and investment adviser, for providing certain administration
functions to a Fund, including: (i) responding to inquiries
140
<PAGE>
from financial institutions and intermediaries on behalf of their customers or
customers' inquiries concerning their investment in Shares; (ii) providing
educational and/or training materials concerning the Funds for use by
intermediaries or customers; (iii) providing account management and other
general shareholder liaison services; and (iv) providing such other similar
services as we may reasonably request to the extent you are permitted to do so
under applicable statutes, rules or regulations. Payments under the
Administration Plan will be calculated at a rate computed monthly in the manner
set forth in the applicable Fund's then current prospectus, at an annual rate of
up to 0.04% of the average daily net asset value of the Institutional Shares of
such Fund.
Investor Class
--------------
NR has adopted a distribution plan (the "Investor Class Distribution
Plan" or the "Distribution Plan") for the Investor Class Shares of the Funds in
accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates
circumstances under which an investment company may directly or indirectly bear
expenses relating to the distribution of its shares. Continuance of the
Distribution Plan must be approved annually by a majority of the Trustees of NR
and by a majority of the Trustees who are not "interested persons" (as defined
in the 1940 Act) of NR and who have no direct or indirect financial interest in
the operation of the plan or in any agreements thereunder (the "Qualified
Trustees"). The Distribution Plan requires that quarterly written reports of
amounts spent under such Distribution Plan and the purposes of such expenditures
be furnished to and reviewed by the Trustees, and the Distribution Plan may not
be amended to increase materially the amount which may be spent thereunder
without approval by a majority of the outstanding Investor Class Shares of NR.
All material amendments of the Distribution Plan will require approval by a
majority of the Trustees and of the Qualified Trustees.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse
the Distributor for any activities or expenses primarily intended to result in
the sale of a Fund's Investor Class Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Investor Class Shares
with the Distributor ("Selling Agents"). Payments under a Fund's Investor Class
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Board of Trustees provided that the annual rate may not exceed
0.10% of the average daily net asset value of each Fund's Investor Class Shares.
The fees payable under the Investor Class Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor Class Plan may be made with respect to (i)
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively; (ii)
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; (iii)
overhead and other office expenses of the Distributor 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 in the Distributor's or Selling Agents' 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 the
Distributor's or Selling Agents' offices in connection with the sale of Fund
shares, including lease costs, the salaries and employee benefit costs of
administrative, operations and support personnel, utility costs, communication
costs and the costs of stationery and supplies, (ii) the costs of client sales
seminars and travel related to distribution and sales support activities, and
(iii) other expenses relating to distribution and sales support activities.
In addition, the Trustees have approved a shareholder servicing plan
with respect to Investor Class Shares of the Funds (the "Investor Class
Servicing Plan" or the Servicing Plan"). Pursuant to the Servicing Plan, a Fund
may compensate or reimburse banks, broker/dealers or other financial
institutions that have entered into Shareholder Servicing Agreements with NR for
certain activities or expenses of the Servicing Agents in connection with
shareholder services that are provided by the Servicing Agents. The Servicing
Plan provides that payments under the Servicing Plan will be paid at a rate or
rates set from time to time by the Board of Trustees, provided that the annual
rate may not exceed 0.25% of the average daily net asset value of the Investor
Class Shares beneficially owned by the Servicing Agents' clients.
141
<PAGE>
The fees payable under the Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents under the Servicing Plan may include: (i)
aggregating and processing purchase and redemption requests for shares from
customers and transmitting promptly net purchase and redemption orders to the
Distributor or transfer agent; (ii) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from NR on behalf of customers; (iv) providing information periodically to
customers showing their positions in shares; (v) arranging for bank wires; (vi)
responding to customers' inquiries concerning their investment in shares; (vii)
providing sub-accounting with respect to shares beneficially owned by customers
or providing the information to NR necessary for sub-accounting; (viii) if
required by law, forwarding shareholder communications from NR (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to customers; (ix) forwarding to customers proxy
statements and proxies containing any proposals regarding the Servicing Plan or
related agreements; (x) providing general shareholder liaison services; and (xi)
providing such other similar services as NR may reasonably request to the extent
such Servicing Agents are permitted to do so under applicable statutes, rules or
regulations.
The shareholder servicing plan with respect to the Investor Class
Distribution Plan and the Investor Class Servicing Plan (collectively, the
"Plans") will continue in effect only so long as such continuance is approved at
least annually by (i) a majority of the Board of Trustees, and (ii) a majority
of the Qualified Trustees, pursuant to a vote cast in person at a meeting called
for the purpose of voting on the Plan. Each Plan may not be amended to increase
materially the amount which may be spent thereunder without approval of a
majority of the outstanding Shares of such Fund. All material amendments to a
Plan require the approval of a majority of the Board of Trustees and the
Qualified Trustees. The Plans require that quarterly written reports of the
amounts spent under the Plans and the purposes of such expenditures be furnished
to, and reviewed by, the Trustees.
<TABLE>
<CAPTION>
Net Shareholder
Net 12b-1 Fees Servicing Plan
Paid to Fees Paid to
Investor Class Shares Stephens Bank of America Net Fees Paid Net Fees Waived
--------------------- ---------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Cash Reserves $3,237,297 $8,093,243 $11,330,540 $ -
Money Market Reserves - - - -
Treasury Reserves 364,522 911,306 1,275,828 -
Government Reserves 143,580 358,950 502,530 -
Municipal Reserves 72,511 181,277 253,788 -
Cal Tax-Exempt Reserves 325,431 813,577 1,139,008 -
------------------ ------------------- ---------------- ------------------
$4,143,341 $10,358,353 $14,501,694 $ -
================== =================== ================ ==================
</TABLE>
Expenses
The Administrator furnishes, without additional cost to each Company,
the services of the Treasurer and Secretary of each Company and such other
personnel (other than the personnel of the Adviser) as are required for the
proper conduct of each Company's affairs. The Distributor bears the incremental
expenses of printing and distributing prospectuses used by the Distributor or
furnished by the Distributor to investors in connection with the public offering
of each Company's shares and the costs of any other promotional or sales
literature, except that to the extent permitted under the Plans relating to the
Investor A, Investor B or Investor C Shares of each Fund, sales-related expenses
incurred by the Distributor may be reimbursed by each Company.
Each Company pays or causes to be paid all other expenses of each
Company, including, without limitation: the fees of the Adviser, the
Administrator and Co-Administrator; the charges and expenses of any registrar,
any custodian or depository appointed by each Company for the safekeeping of its
cash, fund securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by each Company; brokerage commissions
chargeable to each Company in connection with fund securities transactions to
which each Company is a party; all taxes, including securities issuance and
transfer taxes; corporate fees payable by each Company to federal, state or
other governmental agencies; all costs and expenses in connection with the
registration and maintenance of registration of each Company and its shares with
the SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of typesetting
prospectuses
142
<PAGE>
and statements of additional information of each Company (including supplements
thereto) and periodic reports and of printing and distributing such prospectuses
and statements of additional information (including supplements thereto) to each
Company's shareholders; all expenses of shareholders' and directors' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend or distribution, whether in shares or cash; charges and expenses of any
outside service used for pricing of each Company's shares; fees and expenses of
legal counsel and of independent auditors in connection with any matter relating
to each Company; membership dues of industry associations; interest payable on
Company borrowings; postage and long-distance telephone charges; insurance
premiums on property or personnel (including officers and directors) of each
Company which inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of each
Company's operation unless otherwise explicitly assumed by the Adviser), the
Administrator or Co-Administrator.
Expenses of each Company which are not directly attributable to the
operations of any class of shares or Fund are pro-rated among all classes of
shares or Fund of each Company based upon the relative net assets of each class
or Fund. Expenses of each Company which are not directly attributable to a
specific class of shares but are directly attributable to a specific Fund are
prorated among all the classes of shares of such Fund based upon the relative
net assets of each such class of shares. Expenses of each Company which are
directly attributable to a class of shares are charged against the income
available for distribution as dividends to such class of shares.
The Advisory Agreement, the Sub-Advisory Agreements, and the
Administration Agreement require the Advisers and the Administrator to reduce
their fees to the extent required to satisfy any expense limitations which may
be imposed by the securities laws or regulations thereunder of any state in
which a Fund's shares are registered or qualified for sale, as such limitations
may be raised or lowered from time to time, and the aggregate of all such
investment advisory, sub-advisory, and administration fees shall be reduced by
the amount of such excess. The amount of any such reduction to be borne by the
Advisers or the Administrator shall be deducted from the monthly investment
advisory and administration fees otherwise payable to the Advisers and the
Administrator during such fiscal year. If required pursuant to such state
securities regulations, the Advisers and the Administrator will reimburse the
Company no later than the last day of the first month of the next succeeding
fiscal year, for any such annual operating expenses (after reduction of all
investment advisory and administration fees in excess of such limitation).
Transfer Agents and Custodians
PFPC Inc. is located at 400 Bellevue Parkway, Wilmington, Delaware
19809, and acts as transfer agent for each Fund's Shares. Under the transfer
agency agreements, the transfer agent maintains shareholder account records for
the Company, handles certain communications between shareholders and the
Companies, and distributes dividends and distributions payable by the Companies
to shareholders, and produces statements with respect to account activity for
the Companies and its shareholders for these services. The transfer agent
receives a monthly fee computed on the basis of the number of shareholder
accounts that it maintains for each Company during the month and is reimbursed
for out-of-pocket expenses.
Bank of America serves as sub-transfer agent for each Fund's Primary A
and Primary B Shares.
BNY 100 Church Street, New York, N.Y. 10286 serves as custodian for the
Funds' assets. As custodian, BNY maintains the Funds' securities cash and other
property, delivers securities against payment upon sale and pays for securities
against delivery upon purchase, makes payments on behalf of such Funds for
payments of dividends, distributions and redemptions, endorses and collects on
behalf of such Funds all checks, and receives all dividends and other
distributions made on securities owned by such Funds.
The Bank of New York ("BNY"), Avenue des Arts, 35 1040 Brussels,
Belgium serves as custodian for the assets of the international Funds.
The SEC has amended Rule 17f-5 under the 1940 Act to permit boards to
delegate certain foreign custody matters to foreign custody managers and to
modify the criteria applied in the selection process. Accordingly, BNY serves as
Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement, under
which the Boards of Directors/Trustees retain the responsibility for selecting
foreign compulsory depositories, although BNY agrees to make certain findings
with respect to such depositories and to monitor such depositories.
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<PAGE>
Distributor
Stephens Inc. (the "Distributor") serves as the principal underwriter
and distributor of the shares of the Funds.
Pursuant to a distribution agreement (the "Distribution Agreement"),
the Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Companies or
the Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing of
prospectuses to other than existing shareholders, and the printing and mailing
of sales literature. The Distributor, however, may be reimbursed for all or a
portion of such expenses to the extent permitted by a distribution plan adopted
by the Companies pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Directors/Trustees
or a vote of the majority (as defined in the 1940 Act) of the outstanding voting
securities of the Fund and (ii) a majority of the directors who are not parties
to the Distribution Agreement or "interested persons" of any such party by a
vote cast in person at a meeting called for such purpose. The Distribution
Agreement is not assignable and is terminable with respect to a Fund, without
penalty, on 60 days' notice by the Board of Directors/Trustees, the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Fund, or by the Distributor.
Independent Accountants and Reports
The Companies issue unaudited financial information semi-annually and
audited financial statements annually. The Companies furnish proxy statements
and other shareholder reports to shareholders of record.
The annual financial statements will be audited by each Company's
independent accountant. The Board of Directors/Trustees has selected
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, as each Company's independent accountant to audit each Company's books
and review each Company's tax returns for the Funds' fiscal year ended March 31,
2000. PricewaterhouseCoopers LLP was the independent public accountants for the
Funds (except the International Value Fund) for the period ended March 31, 1999.
KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215 were the independent
auditors for the Emerald International Equity Fund (predecessor to the
International Value Fund) for the fiscal period December 1, 1997 through May 15,
1998 and for the fiscal year ended November 30, 1997.
The Financial Statements and Financial Highlights for the fiscal period
ended March 31, 2000 are hereby incorporated herein by reference in this SAI.
The Annual Reports for the fiscal period ended March 31, 1999 are hereby
incorporated herein by reference in this SAI. The Annual Reports for the Emerald
International Equity Fund (the predecessor to the International Value Fund) for
the fiscal period ended May 15, 1998 and for the fiscal year ended November 30,
1997 are also incorporated herein by reference. These Annual Reports will be
sent free of charge with this SAI to any shareholder who requests this SAI.
Counsel
Morrison & Foerster LLP serves as legal counsel to the Companies. Their
address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006.
FUND TRANSACTIONS AND BROKERAGE
-------------------------------
General Brokerage Policy
Subject to policies established by the Board of Directors/Trustees of
each Company, the Adviser is responsible for decisions to buy and sell
securities for each Fund, for the selection of broker/dealers, for the execution
of such Fund's securities transactions, and for the allocation of brokerage fees
in connection with such transactions. The Adviser's primary consideration in
effecting a security transaction is to obtain the best net price and the most
favorable execution of the order. Purchases and sales of securities on a
securities exchange are effected
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<PAGE>
through brokers who charge a negotiated commission for their services. Orders
may be directed to any broker to the extent and in the manner permitted by
applicable law.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without
stated commissions, although the price of a security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which case
no commissions or discounts are paid.
In placing orders for portfolio securities of a Fund, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. This means that the Adviser will seek to execute each
transaction at a price and commission, if any, which provide the most favorable
total cost or proceeds reasonably attainable in the circumstances. In seeking
such execution, the Adviser will use its best judgment in evaluating the terms
of a transaction, and will give consideration to various relevant factors,
including, without limitation, the size and type of the transaction, the nature
and character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions and
the reasonableness of the spread or commission, if any. In addition, the Adviser
will consider research and investment services provided by brokers or dealers
who effect or are parties to portfolio transactions of a Fund, the Adviser or
its other clients. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. Such services are used by the Adviser in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of transactions of such other accounts, whose aggregate assets are far
larger than those of a Fund. Services furnished by such brokers may be used by
the Adviser in providing investment advisory and investment management services
for the Companies.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Directors/Trustees of the respective Company. On exchanges on which commissions
are negotiated, the cost of transactions may vary among different brokers.
Transactions on foreign stock exchanges involve payment of brokerage commissions
which are generally fixed. Transactions in both foreign and domestic
over-the-counter markets are generally principal transactions with dealers, and
the costs of such transactions involve dealer spreads rather than brokerage
commissions. With respect to over-the-counter transactions, the Adviser, where
possible, will deal directly with dealers who make a market in the securities
involved except in those circumstances in which better prices and execution are
available elsewhere.
In certain instances there may be securities which are suitable for
more than one Fund as well as for one or more of the other clients of the
Adviser. Investment decisions for each Fund and for the Adviser's other clients
are made with the goal of achieving their respective investment objectives. It
may happen that a particular security is bought or sold for only one client even
though it may be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling that same security. Some simultaneous transactions are
inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as far
as a Fund is concerned. The Companies believe that over time their ability to
participate in volume transactions will produce superior executions for the
Funds.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
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<PAGE>
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
The Companies will not execute portfolio transactions through, or
purchase or sell portfolio securities from or to the distributor, the Adviser,
the administrator, the co-administrator or their affiliates, acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by applicable law. In addition, the Companies will not give preference
to correspondents of Bank of America or its affiliates, with respect to such
transactions or securities. (However, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with Bank of America or its affiliates, and to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms.) In addition, a Fund will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the distributor, the Adviser, the administrator, or the
co-administrator, or any of their affiliates, is a member, except to the extent
permitted by the SEC. Under certain circumstances, the Funds may be at a
disadvantage because of these limitations in comparison with other investment
companies which have similar investment objectives but are not subject to such
limitations.
Certain affiliates of Bank of America Corporation and its subsidiary
banks may have deposit, loan or commercial banking relationships with the
corporate users of facilities financed by industrial development revenue bonds
or private activity bonds purchased by the Tax Exempt Fund, the Municipal Income
Fund, the Short-Term Municipal Income Fund, the Intermediate Municipal Bond
Fund, the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds (the "Tax-Free Bond Funds"). Bank of America or certain of its affiliates
may serve as trustee, tender agent, guarantor, placement agent, underwriter, or
in some other capacity, with respect to certain issues of municipal securities.
Under certain circumstances, the Tax-Free Bond Funds may purchase municipal
securities from a member of an underwriting syndicate in which an affiliate of
Bank of America is a member. NFT has adopted procedures pursuant to Rule 10f-3
under the 1940 Act, and intends to comply with the requirements of Rule 10f-3,
in connection with any purchases of municipal securities that may be subject to
such Rule.
Under the 1940 Act, persons affiliated with a Company are prohibited
from dealing with such Company as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. Each of the Funds may purchase securities from underwriting syndicates
of which Bank of America or any of its affiliates is a member under certain
conditions, in accordance with the provisions of a rule adopted under the 1940
Act and any restrictions imposed by the Board of Governors of the Federal
Reserve System.
Investment decisions for each Fund are made independently from those
for each Company's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Funds and another investment
portfolio, investment company, or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each Fund and such other investment
portfolio, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for the Funds
with those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
Brokerage Commissions
---------------------
<TABLE>
<CAPTION>
Fund Fiscal Year Ended March Fiscal Year Ended March Fiscal Year Ended March
---- ----------------------- ----------------------- -----------------------
31, 2000 31, 1999 31, 1998
-------- -------- --------
<S> <C> <C> <C>
Managed SmallCap Index 256,848 $ 375,659 $ 143,732
</TABLE>
146
<PAGE>
<TABLE>
<CAPTION>
Fund Fiscal Year Ended March Fiscal Year Ended March Fiscal Year Ended March
---- ----------------------- ----------------------- -----------------------
31, 2000 31, 1999 31, 1998
-------- -------- --------
<S> <C> <C> <C>
Disciplined Equity 636,330 283,016 152,295
Equity Index 54,415 92,695 208,604
Emerging Growth 224,883 431,473 477,588
Capital Growth Fund 698,225 1,102,071 1,392,418
Managed Index 467,939 313,849 119,677
Value 4,529,543 2,871,137 3,142,078
Balanced Assets 195,936 522,389 1,207,000
Emerging Markets 132,465 35,689 284,328
Equity Income 712,971 1,472,491 1,111,460
International Equity 975,342 2,201,631 2,421,975
International Growth 363,848 212,788 1,054,454
Managed Small Cap Value Index 10,870 16,486 5,469
Marsico Focused Equities 2,288,935 830,511 25,934
Marsico Growth & Income 501,608 265,230 9,903
Small Company Growth 311,001 596,033 184,948
Strategic Equity 411,252 96,069 0
Managed Value Index 6,018 15,461 0
International Value 0 45,493 0
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended March Fiscal Year Ended Fiscal Year Ended
----------------------- ----------------- -----------------
31, 2000 February 28, 1999 February 28, 1998
-------- ----------------- -----------------
<S> <C> <C> <C>
Convertible Securities Fund 106,048 $235,157 $296,651
Asset Allocation Fund+ 358,923 $213,085 $125,211
Blue Chip Master Portfolio 922,789 $925,630 $748,649
</TABLE>
Brokerage Commissions Paid to Affiliates
NFT did pay brokerage commissions to Banc of America Securities, Inc.
during the fiscal year ended March 31, 2000, for Marsico Focused Equities Fund,
in the amount of $221,646 which is 9.68% of the total commissions paid. NFT did
pay brokerage commissions to Banc of America Securities, Inc. during the fiscal
year ended March 31, 2000, for Marsico Growth & Income Fund, in the amount of
$45,740, which is 9.12% of the total commissions paid.
During the fiscal periods ended March 31, 2000, 1999, and 1998, NFT,
NR, NFI, and NFST, did not pay brokerage commissions to Banc of America
Investments, Inc. (or its predecessors), Banc of America Capital Markets, Inc.
(a broker/dealer subsidiary of Bank of America) (or its predecessors), or
Stephens.
NFT did pay brokerage commissions to Nations Montgomery Securities LLC
(a securities underwriting affiliate of Bank of America Corporation) ("NMS")
during the fiscal year ended March 31, 1999, for Marsico Focused Equities Fund,
in the amount of $56,267.46, which is 6.77% of the total commissions paid for
the Fund. NFT did pay brokerage commissions to Westminster Research Clearing NMS
(a securities underwriting affiliated of Bank of America Corporation) during the
fiscal year ended March 31, 1999, for Marsico Focused Equities Fund, in the
amount of $1,361.74, which is 0.16% of the total commissions paid for the Fund.
NFT did pay brokerage commissions to NMS during the fiscal year ended March 31,
1999, for Marsico Growth & Income Fund, in the amount of $16,886.60, which is
6.36% of the total commissions paid for the Fund. NFT did pay brokerage
commissions to Westminster Research Clearing NMS during the fiscal year ended
March 31, 1999, for Marsico Growth & Income Fund, in the amount of $1,310.65,
which is 0.49% of the total commissions paid for the Fund.
NFI did pay brokerage commissions to NMS during the fiscal year ended
March 31, 1999, for the Small Company Fund, in the amount of $7,212.00, which is
1.21% of the total commissions paid for the Fund.
NFT did pay $2,368.03 to Nations Montgomery Securities LLC during the
fiscal year ended March 31, 1998.
-----------
+ Until June 23, 1997, Pacific Horizon Asset Allocation Fund (the predecessor to
Nations Asset Allocation Fund) invested all of its assets in the Asset
Allocation Master Portfolio. Information contained in the chart above includes
brokerage commissions paid by the Asset Allocation Master Portfolio.
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<PAGE>
No other Funds of NR, NFI or NFT paid brokerage fees during the fiscal
years ended March 31, 2000, 1999 and 1998.
Securities of Regular Broker/Dealers
As of March 31, 2000, each Fund owned securities of its "regular
brokers or dealers" or their parents, as defined in the 1940 Act, as follows:
<TABLE>
<CAPTION>
Dollar Amount of
----------------
Fund Broker/Dealer Securities Held
---- ------------- ---------------
<S> <C> <C>
Disciplined Equity Fund Morgan Stanley & Company, Inc. $ 12,532,078
PaineWebber Inc. $ 8,789,000
LargeCap Index Fund Bank of New York $ 6,826,000
Lehman Brothers Inc. $ 2,597,000
Merrill Lynch & Company $ 8,678,000
Value Fund Bank of New York $ 8,331,203
Balanced Assets Fund Bank of New York $ 300,289
Bear Stearns & Company Inc. $ 583,783
Goldman Sachs Group LP $ 483,350
Lehman Brothers Inc. $ 481,575
Merrill Lynch & Company $ 553,875
Equity Income Fund Merrill Lynch & Company $ 4,200,000
Marsico Focused Equities Fund Morgan Stanley & Company, Inc. $ 76,741,422
Marsico Growth & Income Fund Morgan Stanley & Company, Inc. $ 18,084,364
Strategic Growth Fund Merrill Lynch & Company $ 15,492,750
Managed Value Index Fund Bank of New York $ 12,469
Merrill Lynch & Company $ 28,875
Asset Allocation Fund Donaldson, Lufkin & Jenrette $ 1,599,046
J.P. Morgan Securities Inc. $ 1,238,450
Lehman Brothers Inc. $ 2,765,980
Salomon Brothers Inc. $ 1,259,102
Blue Chip Fund Lehman Brothers Inc. $ 7,090,700
Morgan Stanley & Company, Inc. $ 18,343,406
</TABLE>
Directed Brokerage
During the fiscal year ended March 31, 2000, the Funds directed
brokerage transactions to brokers because of research services provided. The
amount of such transactions and related commissions were as follows:
<TABLE>
<CAPTION>
Fund Amount of Transaction(s) Related Commissions
---- ------------------------ -------------------
<S> <C> <C>
Managed SmallCap Index $ 8,413,365 $ 9,018
Disciplined Equity $ 60,900,223 $ 58,640
LargeCap Index - -
</TABLE>
148
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
MidCap Growth $ 13,716,350 $ 22,226
Capital Growth $266,796,358 $ 300,848
Managed Index $ 73,653,355 $ 29,862
Value $573,333,786 $ 730,975
Balanced Assets $ 93,673,591 $ 37,979
Emerging Markets - -
Equity Income $ 65,899,868 $ 42,457
International Equity - -
International Growth - -
Managed SmallCap Value Index $ 373,191 $ 453
Marsico Focused Equities $197,689,417 $ 150,219
Marsico Growth & Income $ 41,503,355 $ 31,678
Small Company $ 8,492,442 $ 13,463
Strategic Growth $ 12,592,974 $ 11,018
Managed Value Index $ 402,395 $ 220
International Value $ - $ -
Convertible Securities $ 9,827,954 $ 10,223
International Equity Fund $147,332,860 $ 521,162
Emerging Markets Fund $ 674,448 $ 4,766
Asset Allocation $ 75,965,682 $ 47,981
Blue Chip Fund $192,327,492 $ 109,335
</TABLE>
Monies Paid to Broker/Dealers from the Adviser's Profit
The following shows fees paid to any broker/dealers from the profits of
the Advisor for the last fiscal year (i.e., April 1, 1999 through March 31,
2000) of the indicated Funds. This information is provided in order to satisfy
certain requirements of Rule 10b-10 under the 1934 Act, which provides that
broker/dealers must provide information to customers regarding any remuneration
that a broker receives in connection with a sales transaction:
<TABLE>
<CAPTION>
Broker Fund/Class Fees Paid
------ ---------- ---------
<S> <C> <C>
Banc of America Securities, Inc. Nations Cash Reserves/Investor $300,256
Class
Banc of America Securities, Inc. Nations Treasury Reserves/Investor $ 24,672
Class
</TABLE>
Section 28(e) Standards
Under Section 28(e) of the Securities Exchange Act of 1934, the Adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), the Adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided ...viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; fund management strategies;
performance information on securities and information concerning prices of
securities; and information supplied by specialized services to the Adviser and
to the Company's Directors/Trustees with respect to the performance, investment
activities and fees and expenses of other
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<PAGE>
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the Adviser's staff can follow. In addition,
this research provides the Adviser with a diverse perspective on financial
markets. Research services which are provided to the Adviser by brokers are
available for the benefit of all accounts managed or advised by the Adviser. In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. The Adviser is of the opinion
that because the broker research supplements rather than replaces its research,
the receipt of such research does not tend to decrease its expenses, but tends
to improve the quality of its investment advice. However, to the extent that the
Adviser would have purchased any such research services had such services not
been provided by brokers, the expenses of such services to the Adviser could be
considered to have been reduced accordingly. Certain research services furnished
by broker/dealers may be useful to the Adviser with clients other than the
Funds. Similarly, any research services received by the Adviser through the
placement of fund transactions of other clients may be of value to the Adviser
in fulfilling its obligations to the Funds. The Adviser is of the opinion that
this material is beneficial in supplementing its research and analysis; and,
therefore, it may benefit the Companies by improving the quality of the
Adviser's investment advice. The advisory fees paid by the Companies are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions and underwriting concessions by the Adviser's clients, including the
Funds.
DESCRIPTION OF SHARES
---------------------
Description of Shares of the Companies
The Companies' Boards of Directors/Trustees have authorized the
issuance of the classes of shares of the Funds indicated above and may, in the
future, authorize the creation of additional investment portfolios or classes of
shares.
The Boards may classify or reclassify any unissued shares of a Company
into shares of any class, classes or Fund in addition to those already
authorized by setting or changing in any one or more respects, from time to
time, prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption, of such shares and,
pursuant to such classification or reclassification to increase or decrease the
number of authorized shares of any Fund or class. Any such classification or
reclassification will comply with the provisions of the 1940 Act. Fractional
shares shall have the same rights as full shares to the extent of their
proportionate interest.
All shares of a Fund have equal voting rights and will be voted in the
aggregate, and not by series, except where voting by a series is required by law
or where the matter involved only affects one series. For example, a change in a
Fund's fundamental investment policy would be voted upon only by shareholders of
the Fund involved. Additionally, approval of an advisory contract is a matter to
be determined separately by Fund. Approval by the shareholders of one Fund is
effective as to that Fund whether or not sufficient votes are received from the
shareholders of the other Funds to approve the proposal as to those Portfolios.
As used in the Prospectus and in this SAI, the term "majority," when referring
to approvals to be obtained from shareholders of a Fund, means the vote of the
lesser of (i) 67% of the shares of the Fund represented at a meeting if the
shareholders of more than 50% of the outstanding interests of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. The term "majority," when referring to the approvals to be obtained
from shareholders of a Company as a whole, means the vote of the lesser of (i)
67% of the Company's shares represented at a meeting if the shareholders of more
than 50% of the Company's outstanding shares are present in person or by proxy,
or (ii) more than 50% of the Company's outstanding shares. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
Each Company may dispense with an annual meeting of shareholders in any
year in which it is not required to elect Trustees/Directors under the 1940 Act.
However, each Company (except NFST) has undertaken to hold a special meeting of
its shareholders for the purpose of voting on the question of removal of a Board
member, if
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<PAGE>
requested in writing by the shareholders of at least 10% of the Company's
outstanding voting shares, and to assist in communicating with other
shareholders as required by Section 16(c) of the 1940 Act.
Each share of a Fund represents an equal proportional interest in the
Fund with each other share and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the Fund, as are declared in
the discretion of the Board members. In the event of the liquidation or
dissolution of a Company, shareholders of that Company's Funds are entitled to
receive the assets attributable to the Fund that are available for distribution,
and a distribution of any general assets not attributable to a particular Fund
that are available for distribution in such manner and on such basis as the
Board members in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Companies.
Net investment income for the Funds for dividend purposes consists of
(i) interest accrued and original issue discount earned on a Fund's assets, (ii)
plus the amortization of market discount and minus the amortization of market
premium on such assets, (iii) less accrued expenses directly attributable to the
Fund and the general expenses of the Company prorated to a Fund on the basis of
its relative net assets, plus dividend or distribution income on a Fund's
assets.
Prior to purchasing shares in one of the Funds, the impact of dividends
or distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution. All or a portion of such dividend or distribution, although in
effect a return of capital, may be subject to tax.
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving an amount equal to the fair market value of the
shares received, determined as of the reinvestment date.
Shares in the Funds may be purchased pursuant to the policies outlined
in the Funds' prospectuses. In addition to the policies in such prospectuses the
following purchasing or buying policy shall also apply. The Funds will waive any
contingent deferred sales charge on the exchange or transfer of a shareholder's
investment in a Fund to any of the offshore funds in the Nations Funds family.
The Funds use the so-called "equalization accounting method" to
allocate a portion of earnings and profits to redemption proceeds. This method
permits a fund to achieve more balanced distributions for both continuing and
departing shareholders. Continuing shareholders should realize tax savings or
deferrals through this method, and departing shareholders will not have their
tax obligations change. Although using this method will not affect a Fund's
total returns, it may reduce the amount that otherwise would be distributable to
continuing shareholders by reducing the effect of redemptions on dividend and
distribution amounts.
Net Asset Value Determination
Money Market Funds
------------------
The Money Market Funds use the amortized cost method of valuation to
value their shares in such Funds. Pursuant to this method, a security is valued
at its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations or by procedures adopted by the Board of Trustees. This method
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the security.
The net asset value per share of the Money Market Funds will be
determined (unless the Funds close earlier) as of 3:00 p.m., Eastern time (10:30
a.m., Eastern time, with respect to California Tax-Exempt Reserves; 12:00 noon,
Eastern time, with respect to the Government Money Market Fund, the Tax-Exempt
Fund, Government Reserves and Municipal Reserves; and 5:00 p.m., Eastern time,
with respect to Treasury Reserves, Cash Reserves and Money Market Reserves), on
each day the Exchange is open for business.
Each of the Money Market Funds invests only in high quality instruments
and maintains a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that
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a Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. NR's and NFI's
Board of Directors and NFT's Board of Trustees each have established procedures
reasonably designed, taking into account current market conditions and each
Money Market Fund's investment objective, to stabilize the net asset value per
share of each Money Market Fund for purposes of sales and redemptions at $1.00.
These procedures include review by the Board of Directors/Trustees, at such
intervals as it deems appropriate, to determine the extent, if any, to which the
net asset value per share of each Money Market Fund calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds one-half of one percent, the Board of Directors/Trustees will
promptly consider what action, if any, should be initiated. If the Board of
Directors/Trustees believes that the extent of any deviation from a Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to new or existing investors, it has agreed to take such steps as it
considers appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
Non-Money Market Funds
----------------------
With respect to the Non-Money Market Funds, a security listed or traded
on an exchange is valued at its last sale price on the exchange where the
security is principally traded or, lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on that
day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sale price on the valuation date. With respect to
the Bond Funds, securities may be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities.
With respect to the Non-Money Market Funds, securities for which market
quotations are not readily available are valued under procedures adopted by the
Board of Directors/Trustees of the Companies. Short-Term obligations having 60
days or less to maturity are valued at amortized cost, which approximates
current market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the shares of the Fund are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New York
Stock Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange, which will not be reflected in the
computation of net asset value. If during such periods events occur which
materially affect the value of such securities, the securities will be valued at
their fair value under procedures adopted by the Boards.
For purposes of determining the net asset value per share of the
International Funds, all assets and liabilities of the International Funds
initially expressed in foreign currencies will be converted into U.S. dollars at
the mean between the bid and offer prices of such currencies against U.S.
dollars quoted by a major bank that is a regular participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.
A Company may redeem shares involuntarily to reimburse the Funds for
any loss sustained by reason of the failure of a shareholder to make full
payment for Investor Shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Investor Shares as provided in the related Prospectuses from
time to time. A Company also may make payment for redemptions in readily
marketable securities or other property if it is appropriate to do so in light
of such Company's responsibilities under the 1940 Act.
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Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for Shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; (d) an emergency exists as
determined by the SEC. (The Funds may also suspend or postpone the recordation
of the transfer of their shares upon the occurrence of any of the foregoing
conditions.)
ADDITIONAL INFORMATION CONCERNING TAXES
---------------------------------------
The following information supplements and should be read in conjunction
with the Prospectuses. The Prospectuses of the Funds describe generally the tax
treatment of distributions by the Funds. This section of the SAI includes
additional information concerning Federal income taxes.
General
The Companies intend to qualify each Fund as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), as long as such qualification is in the best interest of the Fund's
shareholders. Each Fund will be treated as a separate entity for tax purposes
and, thus, the provisions of the Code applicable to regulated investment
companies generally will be applied to each Fund, rather than to a Company as a
whole. In addition, net capital gain, net investment income, and operating
expenses will be determined separately for each Fund. As a regulated investment
company, each Fund will not be taxed on its net investment income and capital
gains distributed to shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) each Fund derive at least 90% of its
annual gross income from dividends, interest, certain payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities or foreign currencies (to the extent such currency gains are directly
related to the regulated investment company's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (b) the Fund diversify
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
government securities and other securities limited in respect of any one issuer
to an amount not greater than 5% of the Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government obligations and the securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses.
Each Fund also must distribute or be deemed to distribute to its
shareholders at least 90% of its net investment income which, for this purpose,
includes net short-term capital gains and certain other items earned in each
taxable year. In general, these distributions must actually or be deemed to be
made in the taxable year. However, in certain circumstances, such distributions
may be made in the 12 months following the taxable year. Furthermore,
distributions declared in October, November or December of one taxable year and
paid by January 31 of the following taxable year will be treated as paid by
December 31 the first taxable year. The Funds intend to pay out substantially
all of their net investment income and net capital gain (if any) for each year.
Excise Tax
A 4% nondeductible excise tax will be imposed on each Fund (other than
to the extent of its tax-exempt interest income) to the extent it does not meet
certain minimum distribution requirements of its by the end of each calendar
year. Each Fund intends to actually or be deemed to distribute substantially all
of its income and gains by the end of each calendar year and, thus, expects not
to be subject to the excise tax.
Private Letter Ruling
In order for a Fund to maintain regulated investment company status
under the Code, its dividends, including--for this purpose--capital gain
distributions, must not constitute "preferential dividends," within the meaning
of Section 562(c) of the Code. The Companies have received a private letter
ruling from the Internal
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Revenue Service ("IRS") generally to the effect that the following will not give
rise to preferential dividends: differing fees imposed on the different classes
of shares with respect to servicing, distribution and administrative support
services, and transfer agency arrangements; differing sales charges on purchases
and redemptions of such shares; and conversion features resulting in the
Companies paying different dividends or distributions on the different classes
of shares.
Investment through Master Portfolios
Management of the Master Portfolios corresponding to each of the Feeder
Funds intends for each Master Portfolio to be treated as a partnership (or, in
the event that a Feeder Fund is the sole investor in a Master Portfolio, as
disregarded from the Feeder Fund) for Federal income tax purposes rather than as
a regulated investment company or a corporation under the Code. Under the rules
applicable to a partnership (or a disregarded entity), a proportionate share of
any interest, dividends, gains and losses of a Master Portfolio will be deemed
to have been realized (i.e., "passed-through") to its investors, regardless of
whether any amounts are actually distributed by the Master Portfolio. Each
investor in a Master Portfolio will be taxed on its shares (as determined in
accordance with the governing instruments of the particular Master Portfolio) of
the Master Portfolio's income and gains in determining its Federal income tax
liability. The determination of such share will be made in accordance with the
Code and regulations promulgated thereunder. It is intended that each Master
Portfolio's assets, income and distributions will be managed in such a way that
an investor in a Master Portfolio will be able to qualify as a regulated
investment company by investing substantially all of its assets through the
Master Portfolio.
Taxation of Fund/Master Portfolio Investments
Except as provided herein, gains and losses on the sale of portfolio
securities by a Fund or Master Portfolio ("Fund/Master Portfolio") will
generally be capital gains and losses. Such gains and losses will ordinarily be
long-term capital gains and losses if the securities have been held by the
Fund/Master Portfolio for more than one year at the time of disposition of the
securities.
Gains recognized on the disposition of a debt obligation (including a
tax-exempt obligation) purchased by a Fund/Master Portfolio at a market discount
(generally at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of market discount which accrued,
but was not previously recognized pursuant to an available election, during the
term the Fund/Master Portfolio held the debt obligation.
If an option granted by a Fund/Master Portfolio lapses or is terminated
through a closing transaction, such as a repurchase by the Fund/Master Portfolio
of the option from its holder, the Fund/Master Portfolio will realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid by the Fund in the closing transaction.
Some realized capital losses may be deferred if they result from a position
which is part of a "straddle," discussed below. If securities are sold by a
Fund/Master Portfolio pursuant to the exercise of a call option written by it,
the Fund/Master Portfolio will add the premium received to the sale price of the
securities delivered in determining the amount of gain or loss on the sale. If
securities are purchased by a Fund/Master Portfolio pursuant to the exercise of
a put option written by it, such Fund/Master Portfolio will subtract the premium
received from its cost basis in the securities purchased.
The amount of any gain or loss realized by a Fund/Master Portfolio on
closing out a regulated futures contract will generally result in a realized
capital gain or loss for Federal income tax purposes. Regulated futures
contracts held at the end of each fiscal year will be required to be "marked to
market" for Federal income tax purposes pursuant to Section 1256 of the Code. In
this regard, they will be deemed to have been sold at market value. Sixty
percent (60%) of any net gain or loss recognized on these deemed sales and sixty
percent (60%) of any net realized gain or loss from any actual sales, will
generally be treated as long-term capital gain or loss, and the remainder will
be treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the "mark-to-market" rule and the "60%/40%"
rule.
Under Section 988 of the Code, a Fund/Master Portfolio will generally
recognize ordinary income or loss to the extent gain or loss realized on the
disposition of portfolio securities is attributable to changes in foreign
currency exchange rates. In addition, gain or loss realized on the disposition
of a foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, will generally be treated
as ordinary
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income or loss. Each Fund/Master Portfolio will attempt to monitor Section 988
transactions, where applicable, to avoid adverse tax impact.
Offsetting positions held by a Fund/Master Portfolio involving certain
financial forward, futures or options contracts may be considered, for tax
purposes, to constitute "straddles." "Straddles" are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of "straddles" is governed by Section 1092 of the Code which, in certain
circumstances, overrides or modifies the provisions of Section 1256. If a
Fund/Master Portfolio were treated as entering into "straddles" by engaging in
certain financial forward, futures or option contracts, such straddles could be
characterized as "mixed straddles" if the futures, forwards, or options
comprising a part of such straddles were governed by Section 1256 of the Code. A
Fund/Master Portfolio may make one or more elections with respect to "mixed
straddles." Depending upon which election is made, if any, the results with
respect to the Fund/Master Portfolio may differ. Generally, to the extent the
straddle rules apply to positions established by the Fund/Master Portfolio,
losses realized by the Fund/Master Portfolio may be deferred to the extent of
unrealized gain in any offsetting positions. Moreover, as a result of the
straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be characterized as short-term capital gain or
ordinary income.
If a Fund/Master Portfolio enters into a "constructive sale" of any
appreciated position in stock, a partnership interest, or certain debt
instruments, the Fund/Master Portfolio must recognize gain (but not loss) with
respect to that position. For this purpose, a constructive sale occurs when the
Fund/Master Portfolio enters into one of the following transactions with respect
to the same or substantially identical property: (i) a short sale; (ii) an
offsetting notional principal contract; or (iii) a futures or forward contract.
If a Fund/Master Portfolio purchases shares in a "passive foreign
investment company" ("PFIC"), the Fund/Master Portfolio may be subject to
Federal income tax and an interest charge imposed by the IRS upon certain
distributions from the PFIC or the Fund/Master Portfolio's disposition of its
PFIC shares. If the Fund/Master Portfolio invests in a PFIC, the Fund/Master
Portfolio intends to make an available election to mark-to-market its interest
in PFIC shares. Under the election, the Fund/Master Portfolio will be treated as
recognizing at the end of each taxable year the difference, if any, between the
fair market value of its interest in the PFIC shares and its basis in such
shares. In some circumstances, the recognition of loss may be suspended. The
Fund/Master Portfolio will adjust its basis in the PFIC shares by the amount of
income (or loss) recognized. Although such income (or loss) will be taxable to
the Fund/Master Portfolio as ordinary income (or loss) notwithstanding any
distributions by the PFIC, the Fund/Master Portfolio will not be subject to
Federal income tax or the interest charge with respect to its interest in the
PFIC under the election.
Foreign Taxes
Income and dividends received by a Fund/Master Portfolio from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If more than 50% of the value of a
Fund's total assets at the close of its taxable year consists of securities of
non-U.S. corporations, the Fund will be eligible to file an election with the
IRS pursuant to which the regulated investment company may pass-through to its
shareholders foreign taxes paid by the regulated investment company, which may
be claimed either as a credit or deduction by the shareholders. Only the
International Funds expect to qualify for the election. However, even if a Fund
qualifies for the election, foreign taxes will only pass-through to a Fund
shareholder if (i) the shareholder holds the Fund shares for at least 16 days
during the 30 day period beginning 15 days prior to the date upon which the
shareholder becomes entitled to receive Fund distributions corresponding with
the pass-through of the foreign taxes paid by the Fund, and (ii) with respect to
foreign source dividends received by the Fund on shares giving rise to foreign
tax, the Fund holds the shares for at least 16 days during the 30 day period
beginning 15 days prior to the date upon which the Fund becomes entitled to the
dividend.
An individual with $300 or less of creditable foreign taxes generally
is exempt from foreign source income and certain other limitations imposed by
the Code on claiming a credit for such taxes. The $300 amount is increased to
$600 for joint filers.
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Capital Gain Distributions
Distributions which are designated by a Fund as capital gain
distributions will be taxed to shareholders as long-term term capital gain (to
the extent such distributions equal or exceed the Fund's actual net capital
gains for the taxable year), regardless of how long a shareholder has held Fund
shares. Such distributions will be designated as capital gain distributions in a
written notice mailed by the Fund to its shareholders not later than 60 days
after the close of the Fund's taxable year.
Other Distributions
For Federal income tax purposes, a Fund's earnings and profits will be
determined at the end of each taxable year and will be allocated pro rata over
the entire year. For Federal income tax purposes, only amounts paid out of
earnings and profits will qualify as dividends. Thus, if during a taxable year
the Fund's declared dividends exceed the Fund's net income (as determined at the
end of the year), only that portion of the year's distributions which equals the
year's earnings and profits (generally the Fund's net investment income and
capital gain) will be deemed to have constituted a dividend. Distributions in
excess of earnings and profits will first be treated as a return of capital up
to the amount of a shareholder's basis in its Fund shares and then capital gain.
It is expected that the Fund's net income, on an annual basis, will equal the
dividends declared during the year.
Disposition of Fund Shares
A disposition of Fund shares pursuant to a redemption (including a
redemption in-kind) or an exchange will ordinarily result in a taxable capital
gain or loss, depending on the amount received for the shares (or are deemed to
be received in the case of an exchange) and the cost of the shares.
If a shareholder exchanges or otherwise disposes of Fund shares within
90 days of having acquired such shares and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge on a new
purchase of shares of the Fund or a different regulated investment company, the
sales charge previously incurred in acquiring the Fund's shares shall not be
taken into account (to the extent such previous sales charges do not exceed the
reduction in sales charges on the new purchase) for the purpose of determining
the amount of gain or loss on the disposition, but will be treated as having
been incurred in the acquisition of such other shares. Also, any loss realized
on a redemption or exchange of shares of the Fund will be disallowed to the
extent that substantially identical shares are acquired within the 61-day period
beginning 30 days before and ending 30 days after the shares are disposed of.
If a shareholder receives a capital gain distribution with respect to
any Fund share and such Fund share is held for six months or less, then (unless
otherwise disallowed) any loss on the sale or exchange of that Fund share will
be treated as a long-term capital loss to the extent of the capital gain
distribution. In addition, if a shareholder holds Fund shares for six months or
less, any loss on the sale or exchange of those shares will be disallowed to the
extent of the amount of exempt-interest dividends (defined below) received with
respect to the shares. The Treasury Department is authorized to issue
regulations reducing the six months holding requirement to a period of not less
than the greater of 31 days or the period between regular distributions where a
Fund regularly distributes at least 90% of its net tax-exempt interest, if any.
No such regulations have been issued as of the date of this SAI. The loss
disallowance rules described in this paragraph do not apply to losses realized
under a periodic redemption plan.
Federal Income Tax Rates
As of the printing of this SAI, the maximum individual tax rate
applicable to ordinary income is 39.6% (marginal tax rates may be higher for
some individuals to reduce or eliminate the benefit of exemptions and
deductions); the maximum individual marginal tax rate applicable to net capital
gain is 20%; and the maximum corporate tax rate applicable to ordinary income
and net capital gain is 35% (marginal tax rates may be higher for some
corporations to reduce or eliminate the benefit of lower marginal income tax
rates). Naturally, the amount of tax payable by an individual or corporation
will be affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
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Corporate Shareholders
Corporate shareholders of the Funds may be eligible for the
dividends-received deduction on distributions attributable to dividends received
from domestic corporations, which, if received directly by the corporate
shareholder, would qualify for such deduction. A distribution by a Fund
attributable to dividends of a domestic corporation will only qualify for the
dividends-received deduction if (i) the corporate shareholder generally holds
the Fund shares upon which the distribution is made for at least 46 days during
the 90 day period beginning 45 days prior to the date upon which the shareholder
becomes entitled to the distribution; and (ii) the Fund generally holds the
shares of the domestic corporation producing the dividend income for at least 46
days during the 90 day period beginning 45 days prior to the date upon which the
Fund becomes entitled to such dividend income.
Foreign Shareholders
Under the Code, distributions attributable to income on taxable
investments, net short-term capital gain and certain other items realized by a
Fund and paid to a nonresident alien individual, foreign trust (i.e., a trust
other than a trust which a U.S. court is able to exercise primary supervision
over administration of that trust and one or more U.S. persons have authority to
control substantial decisions of that trust), foreign estate (i.e., the income
of which is not subject to U.S. tax regardless of source), foreign corporation,
or foreign partnership (each, a "foreign shareholder") will be subject to U.S.
withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a distribution paid by the Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business (or, if an
income tax treaty applies, is attributable to a U.S. permanent establishment of
the foreign shareholder), in which case the reporting and withholding
requirements applicable to U.S. persons will apply. Capital gain distributions
generally are not subject to tax withholding.
Backup Withholding
The Companies may be required to withhold, subject to certain
exemptions, at a rate of 31% ("backup withholding") on all distributions and
redemption proceeds (including proceeds from exchanges and redemptions in-kind)
paid or credited to an individual Fund shareholder, unless the shareholder
certifies that the "taxpayer identification number" ("TIN") provided is correct
and that the shareholder is not subject to backup withholding, or the IRS
notifies the Company that the shareholder's TIN is incorrect or that the
shareholder is subject to backup withholding. Such tax withheld does not
constitute any additional tax imposed on the shareholder, and may be claimed as
a tax payment on the shareholder's Federal income tax return. An investor must
provide a valid TIN upon opening or reopening an account. Failure to furnish a
valid TIN to the Company also could subject the investor to penalties imposed by
the IRS.
New Regulations
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding,
U.S. income tax withholding and information reporting rules applicable to
foreign shareholders. The New Regulations will generally be effective for
payments made after December 31, 2000, subject to certain transition rules.
Among other things, the New Regulations will permit the Funds to estimate the
portion of their distributions qualifying as capital gain distributions for
purposes of determining the portion of such distributions paid to foreign
shareholders that will be subject to federal income tax withholding. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Tax-Deferred Plans
The Funds are available for a variety of tax-deferred retirement and other
plans, including Individual Retirement Accounts ("IRA"), Simplified Employee
Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees ("SIMPLE
plans"), Roth IRAs, and Education IRAs, which permit investors to defer some of
their income from taxes.
Special Tax Considerations Pertaining to Municipal Reserves, California
Tax-Exempt Reserves, California Municipal Bond Fund, Tax Exempt Fund, Municipal
Income Fund, Short-Term Municipal Income Fund, Intermediate Municipal Bond Fund,
Florida Intermediate Municipal Bond Fund, Florida Municipal Bond
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Fund, Georgia Intermediate Municipal Bond Fund, Georgia Municipal Bond Fund,
Maryland Intermediate Municipal Bond Fund, Maryland Municipal Bond Fund, North
Carolina Intermediate Municipal Bond Fund, North Carolina Municipal Bond Fund,
South Carolina Intermediate Municipal Bond Fund, South Carolina Municipal Bond
Fund, Tennessee Intermediate Municipal Bond Fund, Tennessee Municipal Bond Fund,
Texas Intermediate Municipal Bond Fund, Texas Municipal Bond Fund, Virginia
Intermediate Municipal Bond Fund, and Virginia Municipal Bond Fund (the
"Tax-Exempt Funds")
If at least 50% of the value of a regulated investment company's total
assets at the close of each quarter of its taxable years consists of obligations
the interest on which is exempt from federal income tax, it will qualify under
the Code to pay "exempt-interest dividends." The Tax-Exempt Funds intend to so
qualify and are designed to provide investors with a high level of income exempt
from federal income tax, and, with respect to California Tax-Exempt Reserves and
California Municipal Bond Fund, Florida Intermediate Municipal Bond Fund and
Florida Municipal Bond Fund, Georgia Intermediate Municipal Bond Fund and
Georgia Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund and
Maryland Municipal Bond Fund, North Carolina Intermediate Municipal Bond Fund
and North Carolina Municipal Bond Fund, South Carolina Intermediate Municipal
Bond Fund and South Carolina Municipal Bond Fund, Tennessee Intermediate
Municipal Bond Fund and Tennessee Municipal Bond Fund, and Virginia Intermediate
Municipal Bond Fund and Virginia Municipal Bond Fund, California individual
income tax, Florida state intangibles tax, and the Georgia, Maryland, North
Carolina, South Carolina, Virginia individual income tax, and the Tennessee Hall
Income Tax on unearned income, respectively. Florida and Texas do not presently
impose any income tax but Florida currently imposes a state intangibles tax on
intangible personal property.
The portion of total dividends paid by a Tax-Exempt Fund with respect
to any taxable year that constitutes exempt-interest dividends will be the same
for all shareholders receiving dividends during such year. Distributions of
capital gains or income not attributable to interest on the Fund's tax-exempt
obligations will not constitute exempt-interest dividends and will be taxable to
its shareholders. The exemption of interest income derived from investments in
tax-exempt obligations for federal income tax purposes may not result in a
similar exemption under the laws of a particular state or local taxing
authority.
Not later than 60 days after the close of its taxable year, each
Tax-Exempt Fund will notify its shareholders of the portion of the dividends
paid with respect to such taxable year which constitutes exempt-interest
dividends. The aggregate amount of dividends so designated cannot exceed the
excess of the amount of interest excludable from gross income under Section 103
of the Code received by the Tax-Exempt Fund during the taxable year over any
amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code.
Interest on indebtedness incurred to purchase or carry shares of a Tax-Exempt
Fund will not be deductible to the extent that the Fund's distributions are
exempt from federal income tax.
In addition, the federal alternative minimum tax ("AMT") rules ensure
that at least a minimum amount of tax is paid by taxpayers who obtain
significant benefit from certain tax deductions and exemptions. Some of these
deductions and exemptions have been designated "tax preference items" which must
be added back to taxable income for purposes of calculating AMT. Among the tax
preference items is tax-exempt interest from "private activity bonds." To the
extent that a Tax-Exempt Fund invests in private activity bonds, its
shareholders who pay AMT will be required to report that portion of Fund
dividends attributable to income from the bonds as a tax preference item in
determining their AMT. Shareholders will be notified of the tax status of
distributions made by a Tax-Exempt Fund. Persons who may be "substantial users"
(or "related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax advisors before purchasing shares in a
Tax-Exempt Fund. Furthermore, shareholders will not be permitted to deduct any
of their share of a Tax-Exempt Fund's expenses in computing their AMT. With
respect to a corporate shareholder of a Tax-Exempt Fund, exempt-interest
dividends paid by the Fund is included in the corporate shareholder's "adjusted
current earnings" as part of its AMT calculation. As of the printing of this
SAI, individuals are subject to an AMT at a maximum rate of 28% and corporations
at a maximum rate of 20%. Shareholders with questions or concerns about the AMT
should consult own their tax advisors.
Shares of a Tax-Exempt Fund would not be suitable investments for
tax-deferred plans and tax-exempt investors.
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Special Tax Considerations Pertaining to California Tax-Exempt Reserves and
California Municipal Bond Fund (the "California Tax-Exempt Funds")
If, at the close of each quarter of its taxable year, at least 50% of
the value of the total assets of a regulated investment company consists of
obligations the interest on which, if held by an individual, is exempt from
taxation by California ("California Exempt Securities"), then the regulated
investment company will be qualified to pay dividends exempt from California
state personal income tax to its non-corporate shareholders (hereinafter
referred to as "California exempt-interest dividends"). For this purpose,
California Exempt Securities generally are limited to California municipal
securities and certain U.S. government and U.S. possession obligations. The
California Tax-Exempt Funds intend to qualify under the above requirements so
that they can pay California exempt-interest dividends. If the California
Tax-Exempt Funds do not so qualify, no part of their respective dividends to
shareholders will be exempt from the California state personal income tax.
Within sixty days after the close of its taxable year, the California
Tax-Exempt Funds will notify their respective shareholders of the portion of the
dividends paid by the respective Fund to each shareholder with respect to such
taxable year which is exempt from California state personal income tax. The
total amount of California exempt-interest dividends paid by the California
Tax-Exempt Funds with respect to any taxable year cannot exceed the excess of
the amount of interest received by the California Tax-Exempt Funds for such year
on California Exempt Securities over any amounts that, if the California
Tax-Exempt Funds were treated as individuals, would be considered expenses
related to tax exempt income or amortizable bond premium and would thus not be
deductible under federal income or California state personal income tax law. The
percentage of total dividends paid for any taxable year which qualifies as
California exempt-interest dividends will be the same for all shareholders
receiving dividends from the Fund for such year.
In cases where shareholders are "substantial users" or "related
persons" with respect to California Exempt Securities held by the California
Tax-Exempt Funds, such shareholders should consult their tax advisors to
determine whether California exempt-interest dividends paid by the Fund with
respect to such obligations retain California state personal income tax
exclusion. In this connection rules similar to those regarding the possible
unavailability of federal exempt-interest dividend treatment to "substantial
users" are applicable for California state tax purposes. Interest on
indebtedness incurred by a shareholder to purchase or carry the California
Tax-Exempt Funds shares is not deductible for California state personal income
tax purposes if the California Tax-Exempt Funds distribute California
exempt-interest dividends during the shareholder's taxable year.
The foregoing is only a summary of some of the important California
state personal income tax considerations generally affecting the California
Tax-Exempt Funds and their shareholders. No attempt is made to present a
detailed explanation of the California state personal income tax treatment of
the California Tax-Exempt Funds or their shareholders, and this discussion is
not intended as a substitute for careful planning. Further, it should be noted
that the portion of any California Tax-Exempt Fund distributions constituting
California exempt-interest dividends is excludable from income for California
state personal income tax purposes only. Any distributions paid to shareholders
subject to California state franchise tax or California state corporate income
tax may be taxable for such purposes. Accordingly, potential investors in the
California Tax-Exempt Funds, including, in particular, corporate investors which
may be subject to either California franchise tax or California corporate income
tax, should consult their own tax advisors with respect to the application of
such taxes to the receipt of the California Tax-Exempt Funds dividends and as to
their own California state tax situation, in general.
Special Tax Considerations Pertaining to Florida Intermediate Municipal Bond
Fund and Florida Municipal Bond Fund (the "Florida Tax-Exempt Funds")
Florida does not impose a personal income tax. Thus individual
shareholders of the Funds will not be subject to any Florida income tax on
distribution received from the Funds. However, Florida does impose an income tax
on corporations. Florida also imposes an annual intangible personal property tax
on intangible personal property (including but not limited to stocks or shares
of business trusts or mutual funds) held by persons domiciled in the State of
Florida, regardless of where such property is kept. Florida counsel has,
however, advised the Companies that shares in the Florida Tax-Exempt Funds shall
not be subject to Florida's intangible personal property tax if on January 1 of
each tax year at least 90 percent of the net assets of the portfolio of such
Fund consists of obligations of the government of the United States of America,
its agencies, instrumentalities, the Commonwealth of Puerto Rico,
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the government of Guam, the government of American Samoa, the government of the
Northern Mariana Islands, the State of Florida, its political subdivisions,
municipalities or other taxing districts.
The Florida Tax-Exempt Funds anticipate that at least 90 percent of the
net assets of the portfolio will contain assets that are exempt from Florida's
intangible personal property tax on January 1 of each tax year. If the portfolio
of the Fund did not, however, meet this 90 percent test, the only the portion of
the net asset value of the portfolio which is made up of direct obligations of
the United States of America, its agencies, territories and possessions (as
described above) may be removed from the net asset value for purposes of
computing the intangible personal property tax. The remaining net asset value of
the portfolio and hence a portion of the net asset value of the shares in the
Florida Tax-Exempt Funds would be subject to the intangible personal property
tax. Notice as to the tax status of your shares will be mailed to you annually.
Shareholders of a Florida Tax-Exempt Funds should consult their own tax advisors
with specific reference to their own tax situation if advised that a portion of
the portfolio of such Funds consisted on January 1 of any year of assets which
are not exempt from Florida's annual intangible personal property tax. Such
annual intangible personal property tax, if any, is due and payable on June 30
of such year in which the tax liability arises.
Special Tax Considerations Pertaining to Georgia Intermediate Municipal Bond
Fund and Georgia Municipal Bond Fund (the "Georgia Tax-Exempt Funds")
The portion of Nations Funds Georgia Intermediate Municipal Bond Fund
and the Nations Georgia Municipal Bond Fund (the "Georgia Funds') exempt
interest dividends paid to Georgia investors from interest received by the
Georgia Funds from tax-exempt obligations of the State of Georgia or its
political subdivisions or authorities and dividend distributions attributable to
interest received from U.S. Government obligations will be exempt from Georgia
personal and corporate income taxes. There is no Georgia intangibles tax or
other personal property tax applicable to the shares of the Georgia Funds owned
by investors residing in Georgia. The Georgia intangibles tax was repealed by
the Georgia General Assembly on March 21, 1996, further ratified by a
Constitutional Amendment approved in the November 1996 General Election (GA. L
1996, P.130 ss. 9). The Georgia intangibles tax was repealed for taxable years
beginning after January 1, 1996. Distributions attributable to capital gains
realized from the sale of Georgia municipal bonds and U.S. government
obligations will be subject to the State of Georgia short-term or long-term
capital gains tax, which follows the federal income tax treatment. Interest
received by a Georgia resident received from non-Georgia municipal state bonds
and dividends or distributions received from mutual funds that derive income
from non-Georgia municipal or state bonds will be subject to Georgia income tax.
Special Tax Considerations Pertaining to the Kansas Fund
The Kansas Intermediate Municipal Bond Fund's regular monthly dividends
will not be subject to the Kansas income tax to the extent that they are paid
out of income earned on Kansas municipal securities that are exempt from Kansas
income taxes. The portion of dividends, if any, that is derived from interest on
municipal securities or other obligations that are not exempt from Kansas income
taxes will be subject to Kansas income tax. You will be subject to Kansas income
tax to the extent the fund distributes any taxable income or realized capital
gains, or if you sell or exchange a fund's shares and realize a capital gain on
the transaction. Distributions treated as long-term capital gains for federal
tax purposes are generally treated the same for Kansas state tax purposes.
Special Tax Considerations Pertaining to Maryland Intermediate Municipal Bond
Fund and Maryland Municipal Bond Fund (the "Maryland Tax-Exempt Funds")
The portion of a Maryland Tax-Exempt Fund's exempt-interest dividends
paid from interest received by such Funds from tax-exempt obligations of the
state of Maryland or its political subdivisions or authorities, or obligations
issued by the government of Puerto Rico, the U.S. Virgin Islands or Guam or
their authorities ("Maryland Municipal Bonds") and distributions attributable to
gains from Maryland Municipal Bonds (other than obligations issued by U.S.
possessions) or interest on U.S. Government obligations will be exempt from
Maryland personal and corporate income taxes; any other dividends from a
Maryland Tax-Exempt Fund will be subject to Maryland income tax. However,
shareholders of a Maryland Tax-Exempt Fund that are financial institutions
otherwise subject to Maryland financial institution franchise taxes (which taxes
have been repealed for taxable years beginning after December 31,2000) will be
subject to such taxes on distributions received from the Fund (including
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exempt-interest dividends). Shareholders will be informed annually regarding the
portion of a Maryland Tax-Exempt Fund's distributions that constitutes
exempt-interest dividends and the portion that is exempt from Maryland income
taxes. Maryland presently includes in Maryland taxable income a portion of
certain items of tax preference as defined in the Code. Interest paid on certain
private activity bonds constitutes such a tax preference if the bonds (i) are
not Maryland Municipal Bonds or (ii) are Maryland Municipal Bonds issued by U.S.
possessions. Accordingly, up to 50% of any distributions from a Maryland
Tax-Exempt Fund attributable to interest on such private activity bonds may not
be exempt from Maryland state and local individual income taxes. Shares of a
Maryland Tax-Exempt Fund will not be subject to the Maryland personal property
tax.
Special Tax Considerations Pertaining to North Carolina Intermediate Municipal
Bond Fund and North Carolina Municipal Bond Fund (the "North Carolina Tax-Exempt
Funds")
Although capital gain distributions generally are subject to tax in
North Carolina, individual shareholders of a North Carolina Tax-Exempt Fund may
deduct the amount of capital gain distributions (if any) attributable to the
sale of certain obligations issued before July 1, 1995 from their federal
taxable income for purposes of determining their North Carolina taxable income.
The North Carolina intangibles tax was repealed effective for taxable years
beginning on or after January 1, 1995.
Special Tax Considerations Pertaining to South Carolina Intermediate Municipal
Bond Fund and South Carolina Municipal Bond Fund
Although any net capital gain recognized with respect to the sale or
exchange of shares of a Fund may be subject to the South Carolina state income
tax, individuals, estates and trusts are entitled to a deduction for South
Carolina taxable income purposes equal to 44% of the net capital gain recognized
from the sale or exchange of an asset which has been held for a period of two or
more years. For the taxable years beginning after 2000, the above-described
deduction will be available for net capital gains recognized from the sale or
exchange of an asset that has been held for a period of more than one year. In
the case of estates or trusts, the deduction is applicable only to income taxed
to the estate or trust or individual beneficiaries and not income passed through
to nonindividual beneficiaries.
Special Tax Considerations Pertaining to Tennessee Municipal Bond Fund
The Tennessee Hall Income Tax imposes a tax on income received by way
of dividends from stock or interest on bonds. Dividends from a qualified
regulated investment company are exempt from the Hall Income Tax, but only to
the extent attributable to interest on bonds or securities of the U.S.
Government or any agency or instrumentality thereof or on bonds of the State of
Tennessee or any county or any municipality or political subdivision thereof,
including any agency, board, authority or commission of any of the above.
Special Tax Considerations Pertaining to Virginia Intermediate Municipal Bond
Fund and Virginia Municipal Bond Fund (the "Virginia Tax-Exempt Funds")
Distributions will not be subject to Virginia income tax if the
Virginia Intermediate Municipal Bond Fund and the Virginia Municipal Bond Fund
pay distributions to Shareholders that they derived from (i) interest on debt
obligations of Virginia or its political subdivisions, (ii) debt obligations of
the United States excludable from Virginia income tax under the laws of the
United States, or (iii) debt obligations of Puerto Rico, Guam, or the Virgin
islands, that are backed by the full faith and credit of the borrowing
government.
Other Matters
Investors should be aware that the investments to be made by the Funds
may involve sophisticated tax rules that may result in income or gain
recognition by a Fund without corresponding current cash receipts. Although the
Funds will seek to avoid significant noncash income, such noncash income could
be recognized by a Fund, in which case the Fund may distribute cash derived from
other sources in order to meet the minimum distribution requirements described
above.
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The foregoing discussion and the discussions in the Prospectus
applicable to each shareholder address only some of the Federal and state tax
considerations generally affecting investments in the Funds. Each investor is
urged to consult his or her tax advisor regarding specific questions as to
Federal, state, local or foreign taxes.
ADDITIONAL INFORMATION ON PERFORMANCE
-------------------------------------
Yield information and other performance information for each Company's
Funds may be obtained by calling (800) 321-7854 or 1.800.765.2668 for the
Government and Corporate Bond Funds. From time to time, the yield and total
return of a Fund's Shares may be quoted in advertisements, shareholder reports,
and other communications to shareholders. Quotations of yield and total return
reflect only the performance of a hypothetical investment in a Fund or class of
shares during the particular time period shown. Yield and total return vary
based on changes in the market conditions and the level of a Fund's expenses,
and no reported performance figure should be considered an indication of
performance which may be expected in the future.
Standardized performance for the Funds, i.e., that required in both
form and content by Form N-1A, is shown below and may be advertised by the
Funds. The main purpose of standardized performance is to allow an investor to
review the performance of a Fund's class of shares and compare such performance
with that of investment alternatives, including other mutual funds.
Non-standardized performance also may be advertised by the Funds. One
purpose of providing non-standardized performance to an investor is to provide
that investor with a different snapshot of a Fund's performance that may not be
captured by standardized performance. The non-standardized performance of a
Fund's class of shares, however, may not be directly comparable to the
performance of investment alternatives because of differences in certain
variables (such as the length of time over which performance is shown and the
exclusion of certain charges or expenses) and methods used to value portfolio
securities, compute expenses and calculate performance. Non-standardized
performance may include, but is not limited to, performance for non-standardized
periods, including year-to-date and other periods less than a year, performance
not reflecting the deduction of certain charges, fees and/or expenses, and
performance reflecting the deduction of applicable state or federal taxes.
After-tax returns are generally calculated using the same methodology as that
used in calculating total return, except that such after-tax returns reflect the
deduction of taxes according to applicable federal income and capital gain tax
rates attributable to dividends, distributions and an investor's redemptions. Of
course, after-tax returns for individual investors will vary as the tax rates
applicable to such investors vary. In addition, the Funds may also advertise
their tax efficiency ratios and compare those ratios with other mutual funds. A
tax efficiency ratio is intended to let an investor know how tax efficient a
fund has been over a period of time, and is typically related to its portfolio
turnover rate. That is, an investor could expect that the higher a Fund's
portfolio turnover rate, the greater the percentage of its gains that would have
been realized and consequently, the less tax efficient it was over a given
period of time.
In general, comparisons to other mutual funds or investment
alternatives may be useful to investors who wish to compare past performance of
the Funds or a class with that of competitors. Of course, past performance
cannot be a guarantee of future results.
Each Fund may quote information obtained from the Investment Company
Institute, national financial publications, trade journals and other industry
sources in its advertising and sales literature. In addition, the Funds also may
compare the performance and yield of a class or series of shares to those of
other mutual funds with similar investment objectives and to other relevant
indices or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the performance and yield of a class of shares in a Fund may be compared to data
prepared by Lipper Analytical Services, Inc. Performance and yield data as
reported in national financial publications such as Money Magazine, Forbes,
Barron's, The Wall Street Journal, and The New York Times, or in publications of
a local or regional nature, also may be used in comparing the performance of a
class of shares in a Fund. The "yield" and "effective yield" of each class of
shares of a Money Market Fund may be compared to the respective averages
compiled by Donoghue's Money Fund Report, a widely recognized independent
publication that monitors the performance of money market funds, or to the
average yields reported by the Bank Rate Monitor for money market deposit
accounts offered by leading banks and thrift institutions in the top five
metropolitan statistical areas.
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The Funds also may use the following information in advertisements and
other types of literature, only to the extent the information is appropriate for
the Fund: (i) the Consumer Price Index may be used to assess the real rate of
return from an investment in a Fund; (ii) other government statistics,
including, but not limited to, The Survey of Current Business, may be used to
illustrate investment attributes of a Fund or the general economic, business,
investment, or financial environment in which a Fund operates; (iii) the effect
of tax-deferred compounding on the investment returns of a Fund, or on returns
in general, may be illustrated by graphs, charts, etc., where such graphs or
charts would compare, at various points in time, the return from an investment
in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment
of capital gains and dividends and assuming one or more tax rates) with the
return on a taxable basis; and (iv) the sectors or industries in which a Fund
invests may be compared to relevant indices of stocks or surveys (e.g., S&P
Industry Surveys) to evaluate a Fund's historical performance or current or
potential value with respect to the particular industry or sector. In addition,
the performance of a Fund's class of shares may be compared to the Standard &
Poor's 500 Stock Index, an unmanaged index of a group of common stocks, the
Consumer Price Index, the Dow Jones Industrial Average, a recognized unmanaged
index of common stocks of 30 industrial companies listed on the New York Stock
Exchange, the Europe, Far East and Australia Index, a recognized unmanaged index
of international stocks, or any similar recognized index. The performance of a
Fund's class of shares also may be compared to a composite index prepared by the
Adviser, an affiliate of the Adviser, or an unaffiliated party to the Adviser.
In addition, the Funds also may use, in advertisements and other types
of literature, information and statements: (1) showing that bank savings
accounts offer a guaranteed return of principal and a fixed rate of interest,
but no opportunity for capital growth; and (2) describing Bank of America, and
its affiliates and predecessors, as one of the first investment managers to
advise investment accounts using asset allocation and index strategies. The
Funds also may include in advertising and other types of literature information
and other data from reports and studies prepared by the Tax Foundation,
including information regarding federal and state tax levels and the related
"Tax Freedom Day."
The Funds also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by an NRSRO, such as Standard & Poor's
Corporation. Such rating would assess the creditworthiness of the investments
held by the Fund. The assigned rating would not be a recommendation to purchase,
sell or hold the Fund's shares since the rating would not comment on the market
price of the Fund's shares or the suitability of the Fund for a particular
investor. In addition, the assigned rating would be subject to change,
suspension or withdrawal as a result of changes in, or unavailability of,
information relating to the Fund or its investments. The Funds may compare a
Fund's performance with other investments which are assigned ratings by NRSROs.
Any such comparisons may be useful to investors who wish to compare the Fund's
past performance with other rated investments.
The Funds also may disclose in sales literature the distribution rate
on the shares of a Fund. Distribution rate, which may be annualized, is the
amount determined by dividing the dollar amount per share of the most recent
dividend by the most recent NAV or maximum offering price per share as of a date
specified in the sales literature. Distribution rate will be accompanied by the
standard 30-day yield as required by the SEC.
In addition, certain potential benefits of investing in world
securities markets may be discussed in promotional materials. Such benefits
include, but are not limited to: a) the expanded opportunities for investment in
securities markets outside the U.S.; b) the growth of securities markets outside
the U.S. vis-a-vis U.S. markets; c) the relative return associated with foreign
securities markets vis-a-vis U.S. markets; and d) a reduced risk of portfolio
volatility resulting from a diversified securities portfolio consisting of both
U.S. and foreign securities.
The Short-Intermediate Government Fund seeks to provide higher current
yields than money market funds and short-term treasury obligations. The
Short-Intermediate Government Fund also seeks to maintain greater price
stability than higher yielding long-term bond funds. Therefore, in its
advertisements and sales materials, the Short-Intermediate Government Fund may
compare performance of the Short-Intermediate Government Fund to money market
indices, such as those compiled by IBC/Donoghue, Inc. and Bank Rate Monitor. In
such advertising and sales materials, the Short-Intermediate Government Fund may
also compare the price stability of the Short-Intermediate Government Fund, or
indices of funds with similar investment objectives, to indices of long term
government bond funds such as those compiled by Salomon Brothers and Shearson
Lehman Brothers Inc. The Short-Intermediate Government Fund is not meant to be a
substitute for a money market fund which seeks to maintain a fixed net asset
value of $1.00 per share.
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Ibbotson Data. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Funds may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth docile. At year-end 199, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $16.7 million. The unweighted average market capitalization
was $82.97 million, while the median was $6.0 million.
Unlike an investment in a common stock mutual fund, an investment in
bonds that are held to maturity provides a fixed and stated rate of return.
Bonds have a senior priority in liquidation or bankruptcy to common stocks, and
interest on bonds is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two highest rating
categories are considered high quality and to present minimal risks of default.
See Schedule A for a more complete explanation of these ratings of corporate
bonds. An advantage of investing in government bonds is that, in many cases,
they are backed by the credit and taxing power of the United States government,
and therefore, such securities may present little or no risk of default.
Although government securities fluctuate in price, they are highly liquid and
may be purchased and sold with relatively small transaction costs (direct
purchase of Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than 5
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
Yield Calculations
Income calculated for the purposes of calculating a Fund's yield
differs from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding assumed in
yield calculations, the yield quoted for a Fund may differ from the rate of
distributions a Fund paid over the same period or the rate of income reported in
the Funds' financial statements.
Money Market Funds. The "yield" and "effective yield" of shares of the
Money Market Funds are computed separately as described below according to
formulas prescribed by the SEC. The standardized seven-day yield is computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account in the particular Fund involved having a
balance of one share of the class or series involved at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of an
account in each Fund includes the value of additional shares purchased with
dividends from the original share, and dividends declared on both the original
share and any such additional shares; and all fees, other than nonrecurring
account or sales charges, that are charged to shareholder accounts in proportion
to the length of the base period and the Fund's average account size. The
capital changes to be excluded from the calculation of the net change in account
value are realized gains and losses from the sale of securities and unrealized
appreciation and
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depreciation. The effective annualized yield for a class or series of shares in
a Fund is computed by compounding the unannualized base period return
(calculated as above) by adding 1 to the base period return, raising the sum to
a power equal to 365 divided by 7, and subtracting 1 from the result.
In addition, the "tax-equivalent yield" of the Shares of the Tax Exempt
Fund is computed by: (a) dividing the portion of the yield that is exempt from
Federal income tax by one minus a stated Federal income tax rate; and (b) adding
the figure resulting from (a) above to that portion, if any, of the yield that
is not exempt from Federal income tax.
The effective yield quotations for the Shares of the Money Market Funds
are computed by compounding the unannualized seven-day base period return as
follows: 1 is added to the base period return and this sum is then raised to a
power equal to (5/7), and 1 is then subtracted from the result. Based on the
seven-day period ended March 31, 2000, (the "base period"), the current and
effective yields of the various shares of the Money Market Funds were as
follows:
Seven Day Yield
---------------
<TABLE>
<CAPTION>
Effective
Yield Tax Tax Equivalent
Yield Without Effective Without Fee Equivalent Yield w/o
Yield Fee Waivers Yield Waivers Yield Waivers
----- ----------- ----- ------- ----- -------
Prime Fund
<S> <C> <C> <C> <C> <C> <C>
Primary A Shares 5.93% 5.88% 6.10% 6.05% n/a n/a
Primary B Shares 5.68% 5.63% 5.84% 5.79% n/a n/a
Investor A Shares 5.58% 5.53% 5.73% 5.68% n/a n/a
Investor B Shares 5.68% 5.53% 5.84% 5.69% n/a n/a
Investor C Shares 5.68% 5.63% 5.84% 5.79% n/a n/a
Daily Shares 5.43% 5.18% 5.57% 5.32% n/a n/a
Marsico Shares 5.68% 5.63% 5.84% 5.79% n/a n/a
Treasury Fund
Primary A Shares 5.67% 5.63% 5.83% 5.79% n/a n/a
Primary B Shares 5.42% 5.38% 5.57% 5.53% n/a n/a
Investor A Shares 5.32% 5.28% 5.46% 5.42% n/a n/a
Investor B Shares 5.42% 5.28% 5.57% 5.43% n/a n/a
Investor C Shares 5.42% 5.38% 5.57% 5.53% n/a n/a
Daily Shares 5.17% 4.93% 5.31% 5.07% n/a n/a
</TABLE>
Seven Day Yield For the Year Ended 3/31/00
------------------------------------------
Tax Equivalent Yields @ 39.6%
<TABLE>
<CAPTION>
Tax
Effective Equivalent
Yield Tax Yield
Yield Without Effective Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- ----------- ----- -----------
Gov't Money Market Fund
<S> <C> <C> <C> <C> <C> <C>
Primary A Shares 5.82% 5.68% 5.99% 5.85% n/a n/a
Primary B Shares 5.57% 5.43% 5.73% 5.59% n/a n/a
Investor A Shares 5.47% 5.33% 5.62% 5.48% n/a n/a
Investor B Shares 5.57% 5.33% 5.72% 5.48% n/a n/a
Investor C Shares 5.57% 5.43% 5.72% 5.58% n/a n/a
Daily Shares 5.32% 4.98% 5.46% 5.12% n/a n/a
Tax Exempt Fund
Primary A Shares 3.55% 3.50% 3.61% 3.56% 5.88% 5.79%
Primary B Shares 3.30% 3.25% 3.35% 3.30% 5.46% 5.38%
Investor A Shares 3.20% 3.15% 3.25% 3.20% 5.30% 5.22%
Investor B Shares 3.30% 3.15% 3.35% 3.20% 5.46% 5.22%
</TABLE>
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<TABLE>
<CAPTION>
Tax
Effective Equivalent
Yield Tax Yield
Yield Without Effective Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Investor C Shares 3.30% 3.25% 3.35% 3.30% 5.46% 5.38%
Daily Shares 3.05% 2.80% 3.10% 2.85% 5.05% 4.64%
</TABLE>
The yield of the Liquidity Class, Adviser Class, Market Class Shares,
Investor Class Shares, Service Class Shares, Daily Class Shares and Trust Class
Shares of the Money Market Funds will normally be lower than the yield of the
Capital Class Shares because Liquidity Class, Adviser Class, Market Class
Shares, Investor Class Shares, Service Class Shares, Daily Class Shares and
Trust Class Shares are subject to distribution and/or shareholder servicing
expenses not charged to Capital Class Shares.
For the 7-day period ended March 31, 2000, the yield of each Fund was
as follows:
<TABLE>
<CAPTION>
Effective Tax Equiv.
Yield w/o Effective Yield w/o Tax Equiv. Yield w/o
Yield Waivers Yield Waivers Yield Waivers
----- ------- ----- ------- ----- -------
Cash Reserves
<S> <C> <C> <C> <C> <C> <C>
Capital Class 6.04% 5.90% 6.22% 6.08% N/A N/A
Liquidity Class 5.89% 5.05% 6.06% 5.22% N/A N/A
Adviser Class 5.79% 5.65% 5.96% 5.82% N/A N/A
Market Class 5.59% 5.45% 5.75% 5.61% N/A N/A
Investor Class 5.69% 5.55% 5.85% 5.71% N/A N/A
Service Class 5.04% 4.90% 5.17% 5.03% N/A N/A
Daily Class 5.44% 5.30% 5.59% 5.45% N/A N/A
Trust Class 5.94% 5.80% 6.12% 5.98% N/A N/A
Investor B Class 4.94% 4.85% 5.07% 4.98% N/A N/A
Investor C Class 4.94% 4.85% 5.07% 4.98% N/A N/A
Money Market Reserves
Capital Class 6.03% 5.81% 6.22% 6.00% N/A N/A
Liquidity Class 5.88% 4.96% 6.06% 5.14% N/A N/A
Adviser Class 5.79% 5.57% 5.95% 5.73% N/A N/A
Market Class 5.59% 5.37% 5.74% 5.52% N/A N/A
Investor Class 5.52% 5.30% 5.68% 5.46% N/A N/A
Service Class 5.04% 4.82% 5.16% 4.94% N/A N/A
Daily Class 5.44% 5.22% 5.58% 5.36% N/A N/A
Trust Class 5.94% 5.72% 6.12% 5.90% N/A N/A
Investor B Class 4.94% 4.72% 5.06% 4.84% N/A N/A
Investor C Class 4.94% 4.72% 5.07% 4.85% N/A N/A
Treasury Reserves
Capital Class 5.80% 5.69% 5.97% 5.86% N/A N/A
Liquidity Class 5.65% 4.79% 0.58% -0.28% N/A N/A
Adviser Class 5.55% 5.44% 5.71% 5.60% N/A N/A
Market Class 5.35% 5.24% 5.50% 5.39% N/A N/A
Investor Class 5.45% 5.34% 5.60% 5.49% N/A N/A
Service Class 4.81% 4.70% 4.92% 4.81% N/A N/A
Daily Class 5.20% 4.09% 5.34% 5.23% N/A N/A
Trust Class 5.70% 5.59% 5.87% 5.76% N/A N/A
Investor B Class 4.71% 4.63% 4.82% 4.74% N/A N/A
Investor C Class N/A N/A N/A N/A N/A N/A
Government Reserves
Capital Class 5.92% 5.82% 6.09% 5.99% N/A N/A
Liquidity Class 5.77% 4.97% 5.93% 5.13% N/A N/A
Adviser Class 5.67% 5.57% 5.83% 5.73% N/A N/A
</TABLE>
166
<PAGE>
<TABLE>
<CAPTION>
Effective Tax Equiv.
Yield w/o Effective Yield w/o Tax Equiv. Yield w/o
Yield Waivers Yield Waivers Yield Waivers
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Market Class 5.47% 5.37% 5.62% 5.52% N/A N/A
Investor Class 5.57% 5.47% 5.72% 5.62% N/A N/A
Service Class 4.92% 4.82% 5.04% 4.94% N/A N/A
Daily Class 5.32% 5.22% 5.46% 5.36% N/A N/A
Trust Class 5.82% 5.72% 5.99% 5.89% N/A N/A
Investor B Class 4.82% 4.72% 4.84% 4.74% N/A N/A
Investor C Class 4.82% 4.72% 4.94% 4.84% N/A N/A
Municipal Reserves
Capital Class 3.66% 3.53% 3.73% 3.60% 6.06% 5.93%
Liquidity Class 3.51% 2.68% 3.58% 2.75% 5.81% 4.98%
Adviser Class 3.41% 3.28% 3.47% 3.34% 5.65% 5.52%
Market Class 3.21% 3.08% 3.27% 3.14% 5.31% 5.18%
Investor Class 3.31% 3.18% 3.37% 3.24% 5.48% 5.35%
Service Class 2.67% 2.54% 2.70% 2.57% 4.42% 4.29%
Daily Class 3.07% 2.94% 3.11% 2.98% 5.08% 4.95%
Trust Class 3.56% 3.43% 3.63% 3.50% 5.89% 5.76%
Investor B Class 2.57% 2.49% 2.60% 2.52% 4.25% 4.17%
Investor C Class N/A N/A N/A N/A N/A N/A
California Tax-Exempt Reserves
Capital Class N/A N/A N/A N/A N/A N/A
Liquidity Class N/A N/A N/A N/A N/A N/A
Adviser Class 2.79% 2.62% 2.83% 2.66% 5.17% 4.85%
Market Class N/A N/A N/A N/A N/A N/A
Investor Class 2.69% 2.52% 2.72% 2.55% 4.96% 4.65%
Service Class N/A N/A N/A N/A N/A N/A
Daily Class 2.44% 2.27% 2.47% 2.30% 4.51% 4.20%
Trust Class 2.94% 2.77% 2.98% 2.81% 5.44% 5.13%
Investor B Class N/A N/A N/A N/A N/A N/A
</TABLE>
Non-Money Market Funds. Yield is calculated separately for the Investor
A, Investor C, Investor B, Primary A and Primary B Shares of a Non-Money Market
Fund by dividing the net investment income per share for a particular class or
series of shares (as described below) earned during a 30-day period by the
maximum offering price per share on the last day of the period (for Primary A
and Primary B Shares, maximum offering price per share is the same as the net
asset value per share) and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. For a class or series of
shares in a Fund, net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
Yield = 2 [(a-b+ 1)(6) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day
of the period (again, for Primary A and Primary B
Shares, this is equivalent to net asset value per
share).
For the purpose of determining net investment income earned during the
period (variable- "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt
167
<PAGE>
obligations held in its portfolio by computing the yield to maturity of each
obligation held by it based on the market value of the obligation (including
actual accrued interest) at the close of business on the last business day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest) and dividing the result by 360 and
multiplying the quotient by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent month that the obligation is in the portfolio.
For purposes of this calculation, it is assumed that each month contains 30
days. The maturity of an obligation with a call provision is the next call date
on which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market values of such debt obligations. The California Municipal Bond
Fund, Municipal Income Fund, Short-Term Municipal Income Fund, Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds calculate interest gained on tax-exempt obligations issued
without original issue discount and having a current market discount by using
the coupon rate of interest instead of the yield to maturity. In the case of
tax-exempt obligations that are issued with original issue discount, where the
discount based on the current market value exceeds the then-remaining portion of
original issue discount, the yield to maturity is the imputed rate based on the
original issue discount calculation. Conversely, where the discount based on the
current market value is less than the remaining portion of the original issue
discount, the yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Funds to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. A Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's prospectus.
The Funds may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor C or Investor
B Shares. These may be calculated based on the Investor A, Investor C or
Investor B Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor C or Investor B Shares may also include additional yield
calculations prepared for the holders of Primary A or Primary B Shares. Such
additional quotations, therefore, will not reflect the effect of the sales
charges mentioned above.
Thirty Day Yield For The Period Ended March 31, 2000
----------------------------------------------------
<TABLE>
<CAPTION>
Tax
Yield Tax Equivalent
Without Equivalent Yield Without
Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
California Municipal Bond Fund
Primary A Shares 5.03% 4.84% 9.18% 8.83%
Investor A Shares 4.83% 4.59% 8.82% 8.38%
Investor B Shares 4.18% 3.84% 7.63% 7.01%
Investor C Shares 4.05% 3.86% 7.40% 7.05%
Intermediate Bond Fund
Primary A Shares 7.20% 6.95% n/a n/a
Investor A Shares 7.05% 6.81% n/a n/a
Investor B Shares 6.26% 6.02% n/a n/a
Investor C Shares 6.14% 5.90% n/a n/a
</TABLE>
The "tax-equivalent" yield is computed by: (a) dividing the portion of
the yield (calculated as above) that is exempt from Federal income tax by (b)
one, minus (i) a stated Federal income tax rate and, for the Nations California
Municipal Bond Fund, (ii) a state income tax rate multiplied by one minus the
Stated Federal; income tax rate. The
168
<PAGE>
Federal income tax rate used in calculating the "tax-equivalent" yield 39.6%.
The state income tax rate used in calculating the "tax-equivalent" yield of
Nations California Municipal Bond Fund is 9.3%.
Hypothetical examples showing the level of taxable yield needed to
produce an after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided is such an illustration:
For Nations California Municipal Bond Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Single Return $25,351-$61,400 $61,401-$128,100 $128,101-$278,450
Joint Return $42,351-$102,300 $102,301-$155,950 $155,951-$278,450
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 6.13% 6.39% 6.89%
5% 7.66% 7.99% 8.61%
6% 9.19% 9.59% 10.34%
7% 10.72% 11.19% 12.06%
8% 12.28% 12.78% 13.78%
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be
made that the Funds will obtain any particular yield. A fund's yield fluctuates
as market conditions change. The tax brackets and the related yield calculations
are based on the 1999 Federal (28%, 31%, 36%) and California (9.3%) tax rates
and assume a Federal tax benefit for the state and local taxes. Note the highest
1999 marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $283,150.
There can be no assurance that all of a yield quoted by one of these
Funds will be tax-free since these Funds may invest in short-term taxable
obligations for temporary defensive periods as described in the Prospectuses.
Also, the above hypothetical examples are for illustration only. Tax laws and
regulations may be changed at any time by legislative or administrative actions
and such changes may make the information contained in such examples obsolete.
During the period for which certain yield quotations are given above,
Bank of America Adviser, the investment adviser and administrator to the Pacific
Horizon California Municipal Bond Fund (the predecessor of Nations California
Municipal Bond Fund) voluntarily waived fees or reimbursed certain expenses of
such shares, thereby increasing yield figures. Such waivers or expense
reimbursements may be discontinued at any time.
Thirty Day Yield For The Period Ended 3/31/00
---------------------------------------------
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Short-Intermediate Government Fund
----------------------------------
Primary A Shares 6.08% 6.03% n/a n/a
Primary B Shares 5.58% 5.32% n/a n/a
Investor A Shares 5.88% 5.78% n/a n/a
Investor B Shares 5.08% 4.94% n/a n/a
Investor C Shares 5.10% 4.99% n/a n/a
Short-Term Income Fund
----------------------
Primary A Shares 6.20% 6.07% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 5.95% 5.80% n/a n/a
Investor B Shares 5.21% 4.63% n/a n/a
Investor C Shares 5.21% 5.08% n/a n/a
</TABLE>
169
<PAGE>
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Strategic Income Fund
---------------------
Primary A Shares 7.23% 7.04% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 6.98% 6.79% n/a n/a
Investor B Shares 6.24% 5.99% n/a n/a
Investor C Shares 6.23% 6.04% n/a n/a
Bond Fund
---------
Primary A Shares 6.59% 6.57% n/a n/a
Primary B Shares n/a n/a n/a n/a
Investor A Shares 6.34% 6.30% n/a n/a
Investor B Shares 5.60% 5.50% n/a n/a
Investor C Shares 5.60% 5.58% n/a n/a
Municipal Income Fund
---------------------
Primary A Shares 5.19% 4.97% 8.59% 8.23%
Investor A Shares 4.99% 4.72% 8.26% 7.81%
Investor B Shares 4.20% 3.91% 6.95% 6.47%
Investor C Shares 4.20% 3.98% 6.95% 6.59%
Short-Term Municipal Income Fund
--------------------------------
Primary A Shares 4.34% 3.97% 7.19% 6.57%
Investor A Shares 4.09% 3.70% 6.77% 6.13%
Investor B Shares 3.35% 2.52% 5.55% 4.17%
Investor C Shares 3.34% 2.97% 5.53% 4.92%
Intermediate Municipal Bond Fund
--------------------------------
Primary A Shares 4.82% 4.62% 7.98% 7.65%
Investor A Shares 4.57% 4.35% 7.57% 7.20%
Investor B Shares 3.83% 3.55% 6.34% 5.88%
Investor C Shares 3.83% 3.63% 6.34% 6.01%
Florida Intermediate Municipal Bond Fund
----------------------------------------
Primary A Shares 4.87% 4.63% 8.06% 7.67%
Investor A Shares 4.63% 4.37% 7.67% 7.24%
Investor B Shares 3.88% 3.55% 6.42% 5.88%
Investor C Shares 3.87% 3.63% 6.41% 6.01%
Georgia Intermediate Municipal Bond Fund
----------------------------------------
Primary A Shares 4.84% 4.56% 8.52% 8.03%
Investor A Shares 4.59% 4.29% 8.09% 7.55%
Investor B Shares 3.85% 3.48% 6.78% 6.13%
Investor C Shares 3.85% 3.57% 6.78% 6.29%
Maryland Intermediate Municipal Bond Fund
-----------------------------------------
Primary A Shares 4.76% 4.50% 8.28% 7.83%
Investor A Shares 4.51% 4.23% 7.85% 7.36%
Investor B Shares 3.77% 3.43% 6.56% 5.97%
Investor C Shares 3.76% 3.50% 6.55% 6.09%
North Carolina Intermediate Municipal Bond Fund
-----------------------------------------------
Primary A Shares 4.70% 4.44% 8.43% 7.97%
Investor A Shares 4.45% 4.17% 7.99% 7.48%
Investor B Shares 3.71% 3.36% 6.66% 6.03%
Investor C Shares 3.71% 3.45% 6.66% 6.19%
South Carolina Intermediate Municipal Bond Fund
-----------------------------------------------
Primary A Shares 4.96% 4.72% 8.83% 8.40%
Investor A Shares 4.71% 4.45% 8.39% 7.92%
Investor B Shares 3.97% 3.64% 7.06% 6.48%
Investor C Shares 3.97% 3.73% 7.06% 6.65%
</TABLE>
170
<PAGE>
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Tennessee Intermediate Municipal Bond Fund
------------------------------------------
Primary A Shares 4.80% 4.36% 8.46% 7.68%
Investor A Shares 4.55% 4.09% 8.01% 7.20%
Investor B Shares 3.83% 3.30% 6.74% 5.81%
Investor C Shares 3.82% 3.38% 6.72% 5.96%
Texas Intermediate Municipal Bond Fund
--------------------------------------
Primary A Shares 4.99% 4.77% 8.26% 7.90%
Investor A Shares 4.74% 4.50% 7.85% 7.45%
Investor B Shares 3.99% 3.69% 6.61% 6.11%
Investor C Shares 4.00% 3.78% 6.62% 6.26%
Virginia Intermediate Municipal Bond Fund
-----------------------------------------
Primary A Shares 4.79% 4.56% 8.41% 8.01%
Investor A Shares 4.54% 4.29% 7.98% 7.53%
Investor B Shares 3.80% 3.48% 6.67% 6.11%
Investor C Shares 3.80% 3.57% 6.67% 6.27%
Florida Municipal Bond Fund
---------------------------
Primary A Shares 5.00% 4.74% 8.28% 7.85%
Investor A Shares 4.75% 4.47% 7.86% 7.40%
Investor B Shares 4.01% 3.68% 6.64% 6.09%
Investor C Shares 4.01% 3.75% 6.64% 6.21%
Georgia Municipal Bond Fund
---------------------------
Primary A Shares 4.83% 4.05% 8.51% 7.14%
Investor A Shares 4.58% 3.78% 8.06% 6.66%
Investor B Shares 3.84% 3.00% 6.77% 5.29%
Investor C Shares 3.84% 3.06% 6.77% 5.39%
Maryland Municipal Bond Fund
----------------------------
Primary A Shares 4.62% 4.00% 8.04% 6.96%
Investor A Shares 4.38% 3.74% 7.62% 6.51%
Investor B Shares 3.63% 2.95% 6.32% 5.13%
Investor C Shares 3.63% 3.01% 6.32% 5.24%
North Carolina Municipal Bond Fund
----------------------------------
Primary A Shares 4.83% 4.30% 8.67% 7.72%
Investor A Shares 4.58% 4.03% 8.22% 7.23%
Investor B Shares 3.84% 3.25% 6.89% 5.83%
Investor C Shares 3.84% 3.31% 6.89% 5.94%
South Carolina Municipal Bond Fund
----------------------------------
Primary A Shares 4.92% 4.24% 8.76% 7.55%
Investor A Shares 4.68% 3.98% 8.33% 7.09%
Investor B Shares 3.93% 3.19% 7.00% 5.68%
Investor C Shares 3.93% 3.25% 7.00% 5.78%
Tennessee Municipal Bond Fund
-----------------------------
Primary A Shares 4.96% 3.42% 8.73% 6.02%
Investor A Shares 4.70% 3.14% 8.28% 5.53%
Investor B Shares 3.97% 2.37% 6.99% 4.17%
Investor C Shares 3.97% 2.43% 6.99% 4.28%
Texas Municipal Bond Fund
-------------------------
Primary A Shares 5.14% 3.64% 8.51% 6.03%
Investor A Shares 4.89% 3.72% 8.10% 6.16%
Investor B Shares 4.15% 2.94% 6.87% 4.87%
Investor C Shares 4.15% 3.00% 6.87% 4.97%
</TABLE>
171
<PAGE>
<TABLE>
<CAPTION>
Tax
Equivalent
Yield Tax Yield
Without Equivalent Without
Yield Fee Waivers Yield Fee Waivers
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Virginia Municipal Bond Fund
----------------------------
Primary A Shares 5.07% 4.32% 8.90% 7.59%
Investor A Shares 4.82% 4.05% 8.47% 7.12%
Investor B Shares 4.08% 3.26% 7.16% 5.73%
Investor C Shares 4.10% 3.35% 7.20% 5.89%
</TABLE>
The "tax-equivalent" yield is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by (b) one, minus
(i) a stated Federal income tax rate, and, for the State Intermediate Municipal
Bond Funds, (ii) a state income tax rate multiplied by one minus the stated
Federal income tax rate. The Federal income tax rate used in calculating the
"tax-equivalent" yield 39.6%. The state income tax rate used in calculating the
"tax-equivalent" yield of the State Intermediate Municipal Bond Funds is as
follows: Florida --0%; Georgia --6%; Maryland --4.875%; North Carolina --7.75%;
South Carolina --7%; Tennessee 6%; Texas --0%; and Virginia --5.75%.
Hypothetical examples showing the level of taxable yield needed to
produce an after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided below are such illustrations:
For the Georgia Intermediate Municipal Bond Fund and Georgia Municipal
Bond Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 5.91% 6.17% 6.65%
5% 7.39% 7.71% 8.31%
6% 8.87% 9.25% 9.97%
7% 10.34% 10.79% 11.64%
8% 11.82% 12.33% 13.30%
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%) and Georgia (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $283,150.
For the Maryland Intermediate Municipal Bond Fund and Maryland
Municipal Bond Fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 6.00% 6.26% 6.75%
5% 7.50% 7.82% 8.43%
6% 9.00% 9.39% 10.12%
7% 10.50% 10.95% 11.81%
8% 12.00% 12.52% 13.50%
</TABLE>
172
<PAGE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%), Maryland (4.875%) and local county (which,
for purposes of the above table is approximately 2.5%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate applied to
taxable income in excess of $283,150.
For the North Carolina Intermediate Municipal Bond Fund and North
Carolina Municipal Bond Fund:
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 6.12% 6.28% 6.78%
5% 7.53% 7.86% 8.47%
6% 9.07% 9.43% 10.46%
7% 10.54% 11.00% 11.86%
8% 12.04% 12.52% 13.55%
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31% 36%) and North Carolina (7.75%) tax rates and
assume a Federal tax benefit for the state and local taxes. Note that the
highest 1999 marginal Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal tax rate
imposed on taxable income in excess of $283,150.
For the South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund:
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 5.97% 6.23% 6.72%
5% 7.47% 7.79% 8.40%
6% 8.96% 9.35% 10.08%
7% 10.45% 10.91% 11.76%
8% 11.95% 12.47% 13.44%
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%) and South Carolina (7%) tax rates and assume
a Federal tax benefit for the state and local taxes. Note that the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $283,150.
173
<PAGE>
For the Tennessee Intermediate Municipal Bond Fund and Tennessee
Municipal Bond Fund:
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 5.91% 6.17% 6.65%
5% 7.39% 7.71% 8.31%
6% 8.87% 9.25% 9.97%
7% 10.34% 10.79% 11.64%
8% 11.82% 12.33% 13.30%
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%) and Tennessee (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $283,150.
For the Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund:
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
4% 5.89% 6.15% 6.63%
5% 7.37% 7.69% 8.29%
6% 8.84% 9.23% 9.95%
7% 10.32% 10.76% 11.60%
8% 11.79% 12.30% 13.26%
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%) and Virginia (5.75%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $283,150.
For the Municipal Income Fund, Short-Term Municipal Income Fund, the
Intermediate Municipal Bond Fund, the Florida Intermediate Municipal Bond Fund,
Florida Municipal Bond Fund, the Texas Intermediate Municipal Bond Fund and
Texas Municipal Bond Fund:
Single Return $25,750-$62,450 $62,450-$130,250 $130,250-$283,150
Joint Return $43,050-$104,050 $104,050-$158,550 $158,550-$283,150
To match a
tax-free
yield of: A taxable investment would have to pay you:
174
<PAGE>
4% 5.56% 5.80% 6.25%
5% 6.94% 7.25% 7.81%
6% 8.33% 8.70% 9.38%
7% 9.72% 10.14% 10.94%
8% 11.11% 11.59% 12.50%
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1999 Federal (28%, 31%, 36%) tax rates. This analysis does not take into
account any state or local taxes imposed, although, with respect to the Florida
Intermediate Municipal Bond Fund, the Florida Municipal Bond Fund, the Texas
Intermediate Municipal Bond Fund and the Texas Municipal Bond Fund, neither
Florida nor Texas impose a personal income tax. Note that the highest 1999
marginal Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal tax rate imposed on
taxable income in excess of $283,150.
There can be no assurance that all of a yield quoted by one of these
Funds will be tax-free since these Funds may invest in short-term taxable
obligations for temporary defensive periods as described in the Prospectuses.
Also, the above hypothetical examples are for illustration only. Tax laws and
regulations may be changed at any time by legislative or administrative actions
and such changes may make the information contained in such examples obsolete.
Thirty Day Yield
Yield Without Fee
Government Securities Fund Yield Waivers
-------------------------- ----- -------
Primary A Shares 6.24% 6.12%
Primary B Shares n/a n/a
Investor A Shares 6.00% 5.88%
Investor B Shares 5.25% 5.07%
Investor C Shares 5.27% 5.15%
During the period for which certain yield quotations are given above,
Bank of America and the Administrator voluntarily waived fees or reimbursed
certain expenses of such shares, thereby increasing yield figures. Such waivers
or expense reimbursements may be discontinued at any time.
Total Return Calculations
Total return measures both the net investment income generated by, and
the effect of any realized or unrealized appreciation or depreciation of the
underlying investments in a Non-Money Market Fund. The Non-Money Market Funds'
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the SEC. Average annual total return
figures are computed by determining the average annual compounded rates of
return over the periods indicated in the advertisement, sales literature or
shareholders' report that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all
175
<PAGE>
shareholder accounts. All performance calculations for the period ended March
31, 1999, reflect the deduction of sales charges, if any, that would have been
deducted from a sale of shares.
Cumulative total return is based on the overall percentage change in
value of a hypothetical investment in the Fund, assuming all Fund dividends and
capital gain distributions are reinvested, without reflecting the effect of any
sales charge that would be paid by an investor, and is not annualized.
Cumulative total return is computed by finding the cumulative
compounded rate of return over the period indicated in the advertisement that
would equate the initial amount invested to the ending redeemable value,
according to the following formula:
CTR = (ERV-P) 100
-----
P
Where: CTR = Cumulative total return
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of such
period
P = initial payment of $1,000.
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates, and (ii)
deducts (a) the maximum sales charge from the hypothetical initial $1,000
investment, and (b) all recurring fees, such as advisory and administrative
fees, charged as expenses to all shareholder accounts. All performance
calculations for the period ended March 31, 2000, reflect the deduction of sales
charges, if any, that would have been deducted from a sale of shares.
<TABLE>
<CAPTION>
Inception Through Inception Through
3/31/00 Without 3/31/00 Including
Average Annual Total Returns Sales Charges Sales Charges
---------------------------- ------------- -------------
<S> <C> <C>
Emerging Markets Fund
Primary A 10.76 10.76
Primary B 12.03 12.03
Investor A 10.47 9.10
Investor B 9.65 9.35
Investor C 9.80 9.80
Convertible Securities Fund
Primary A 17.28 17.28
Investor A 17.16 16.61
Investor B 17.06 17.06
Investor C 20.31 20.31
Asset Allocation Fund
Primary A 15.57 15.57
Investor A 15.32 14.22
Investor B 15.09 15.09
Investor C 16.05 16.05
California Municipal Bond Fund
Primary A 7.52 7.52
Investor A 7.52 7.19
Investor B 7.42 7.42
Investor C 0.31 -0.67
Intermediate Bond Fund
Primary A 4.80 4.80
Investor A 4.79 4.22
Investor B 4.74 4.74
Investor C 3.98 3.98
</TABLE>
176
<PAGE>
<TABLE>
<CAPTION>
Inception Through Inception Through
3/31/00 Without 3/31/00 Including
Average Annual Total Returns Sales Charges Sales Charges
---------------------------- ------------- -------------
<S> <C> <C>
Blue Chip Fund
Primary A 23.03 23.03
Investor A 22.59 21.42
Investor B 22.36 22.36
Investor C 23.95 23.95
</TABLE>
<TABLE>
<CAPTION>
5 Year Period Ended
One Year 3/31/00 or Inception
Period Ended 3/31/00 through 3/31/00
-------------------- ---------------
<S> <C> <C>
Equity Income Fund
Primary A 4.51 13.30
Primary B 3.31 9.24
Investor A 4.26 13.03
Investor B 3.43 12.30
Investor C 3.46 12.43
International Equity Fund
Primary A 39.85 15.35
Primary B 55.83 17.76
Investor A 39.54 15.10
Investor B 38.14 14.20
Investor C 38.12 14.30
Government Securities Fund
Primary A 1.12 5.71
Primary B -4.34 2.70
Investor A 0.80 5.44
Investor B 0.22 4.91
Investor C -0.22 4.85
</TABLE>
<TABLE>
<CAPTION>
One 10 Year Period
Year Ended 3/31/00
Period 5-Year or Inception
Ended Period Ending through
3/31/00 3/31/00 3/31/00
------- ------- -------
<S> <C> <C> <C>
Value Fund
Primary A -0.16 17.34 14.31
Primary B 0.95 - 14.00
Investor A -0.47 17.05 14.11
Investor B -1.24 16.30 14.09
Investor C -1.18 16.45 14.13
Capital Growth Fund
Primary A 29.90 26.61 20.20
Primary B 30.40 - 26.91
Investor A 29.41 26.32 19.92
Investor B 28.42 25.35 20.16
Investor C 28.46 25.58 19.14
MidCap Growth Fund
Primary A 75.34 26.13 20.48
Primary B 76.77 - 24.49
Investor A 74.82 25.84 20.46
Investor B 73.47 24.87 21.16
Investor C 73.50 25.07 19.72
Managed Index Fund
Primary A 15.33 - 26.36
</TABLE>
177
<PAGE>
<TABLE>
<CAPTION>
One 10 Year Period
Year Ended 3/31/00
Period 5-Year or Inception
Ended Period Ending through
3/31/00 3/31/00 3/31/00
------- ------- -------
<S> <C> <C> <C>
Primary B 14.70 - 18.79
Investor A 15.04 - 26.08
SmallCap Index Fund
Primary A 22.97 - 10.77
Primary B 22.62 - 10.27
Investor A 22.67 - 10.50
Aggressive Growth Fund
Primary A -0.16 21.35 21.58
Primary B -0.96 - 18.94
Investor A -0.41 21.09 16.96
Investor B -1.19 20.16 17.81
Investor C -1.16 - 19.59
LargeCap Index Fund
Primary A 17.58 26.36 22.54
Primary B 16.00 - 24.56
Investor A 17.32 - 25.08
Balanced Assets Fund
Primary A 0.73 12.49 10.46
Primary B -1.93 - 8.51
Investor A 0.47 12.27 10.22
Investor B -0.30 11.55 9.44
Investor C -0.27 11.59 9.49
Short-Intermediate Government Fund
Primary A 1.63 5.33 5.87
Primary B 1.23 - 4.73
Investor A 1.43 5.12 5.70
Investor B 0.70 4.56 3.88
Investor C 0.74 4.62 4.35
Short-Term Income Fund
Nations Short-Term Income Primary A 3.00 5.85 5.20
Nations Short-Term Income Primary B -3.47 - 1.52
Nations Short-Term Income Investor A 2.76 5.63 4.96
Nations Short-Term Income Investor B 2.40 5.43 4.83
Nations Short-Term Income Investor C 1.97 5.33 4.68
Nations Strategic Income Primary A -0.95 6.16 6.87
Nations Strategic Income Primary B -7.74 - 1.51
Nations Strategic Income Investor A -1.30 5.88 6.57
Nations Strategic Income Investor B -1.98 5.28 4.98
Nations Strategic Income Investor C -2.04 5.34 6.13
Nations Bond Primary A 0.97 6.02 5.83
Nations Bond Primary B -4.72 - 2.15
Nations Bond Investor A 0.74 5.80 5.62
Nations Bond Investor B 0.05 5.23 4.46
Nations Bond Investor C -0.24 5.28 5.14
Nations Municipal Income Primary A -2.08 5.79 6.66
Nations Municipal Income Investor A -2.28 5.57 6.49
Nations Municipal Income Investor B -2.99 4.93 4.33
Nations Municipal Income Investor C -3.03 5.03 5.30
Nations Short-Term Muni Income Fund 2.58 4.49 4.15
Primary A
Nations Short-Term Muni Income Fund 2.35 4.28 3.99
Investor A
</TABLE>
178
<PAGE>
<TABLE>
<CAPTION>
One 10 Year Period
Year Ended 3/31/00
Period 5-Year or Inception
Ended Period Ending through
3/31/00 3/31/00 3/31/00
------- ------- -------
<S> <C> <C> <C>
Nations Short-Term Muni Income Fund 1.99 4.08 3.76
Investor B
Nations Short-Term Muni Income Fund 1.57 4.00 4.05
Investor C
Nations Interm Muni Bond Fund Primary A -0.27 5.06 4.62
Nations Interm Muni Bond Fund Investor A -0.49 4.85 4.27
Nations Interm Muni Bond Fund Investor B -1.18 4.36 3.76
Nations Interm Muni Bond Fund Investor C -1.19 4.42 5.31
Nations Florida Muni Bond Primary A 0.26 5.77 4.56
Nations Florida Muni Bond Investor A 0.04 5.55 4.25
Nations Florida Muni Bond Investor B -0.67 4.91 3.61
Nations Florida Muni Bond Investor C -0.73 4.98 6.69
Nations Georgia Interm Muni Bond Primary A -0.02 4.99 5.54
Nations Georgia Interm Muni Bond Investor A -0.27 4.77 5.36
Nations Georgia Interm Muni Bond Investor B -0.96 4.28 3.97
Nations Georgia Interm Muni Bond Investor C -1.13 4.23 4.65
Nations Maryland Interm Muni Bond Primary A 0.17 4.81 5.87
Nations Maryland Interm Muni Bond Investor A -0.06 4.60 5.70
Nations Maryland Interm Muni Bond Investor B -0.74 4.10 3.80
Nations Maryland Interm Muni Bond Investor C -0.82 4.08 4.31
Nations North Carolina Muni Bond Fund -0.98 5.60 4.19
Primary A
Nations North Carolina Muni Bond Fund -1.20 5.38 4.16
Investor A
Nations North Carolina Muni Bond Fund -1.90 4.74 3.48
Investor B
Nations North Carolina Muni Bond Fund -1.99 4.80 6.56
Investor C
Nations South Carolina Muni Bond Fund -0.72 5.60 4.71
Primary A
Nations South Carolina Muni Bond Fund -0.95 5.39 4.76
Investor A
Nations South Carolina Muni Bond Fund -1.65 4.74 3.91
Investor B
Nations South Carolina Muni Bond Fund -1.71 4.81 6.45
Investor C
Nations Tennessee Municipal Bond Fund -1.36 5.63 5.29
Primary A
Nations Tennessee Municipal Bond Fund -1.59 5.42 4.60
Investor A
Nations Tennessee Municipal Bond Fund -2.28 4.77 3.77
Investor B
Nations Tennessee Municipal Bond Fund -2.35 4.84 6.52
Investor C
Nations Texas Municipal Bond Fund Primary A -0.63 5.90 4.39
Nations Texas Municipal Bond Fund Investor A -0.86 5.68 4.35
Nations Texas Municipal Bond Fund Investor B -1.56 5.03 3.60
Nations Texas Municipal Bond Fund Investor C -1.62 5.09 6.69
Nations Virginia Municipal Bond Fund Primary A -0.69 5.84 4.27
Nations Virginia Municipal Bond Fund Investor A -1.02 5.60 4.33
Nations Virginia Municipal Bond Fund Investor B -1.61 4.98 3.45
Nations Virginia Municipal Bond Fund Investor C -1.58 5.05 6.71
Investor C
</TABLE>
179
<PAGE>
<TABLE>
<CAPTION>
One Year 10 Year Period
Period 5-Year Ended 3/31/00
Ended Period Ending or Inception
3/31/00 3/31/00 through 3/31/00
------- ------ ---------------
<S> <C> <C> <C>
Nations Convertible Securities Investor A 39.38 21.39 17.65
Nations Convertible Securities Investor B* 38.28 21.12 17.52
Nations Convertible Securities Investor C 38.39 - 20.31
Nations Convertible Securities Primary A** 41.14 21.70 17.79
Nations Asset Allocation Fund Investor A 10.65 17.92 15.32
Nations Asset Allocation Fund Investor B* 9.77 17.64 15.09
Nations Asset Allocation Fund Investor C 9.75 - 16.05
Nations Asset Allocation Fund Primary A** 12.18 18.24 15.57
Nations California Muni Bond Fund Investor A -1.37 5.47 6.50
Nations California Muni Bond Fund Investor B* 0.66 5.48 4.74
Nations California Muni Bond Fund Investor C - - 0.31
Nations California Muni Bond Fund Primary A** -1.36 5.47 6.50
Nations Intermediate Bond Investor A 0.92 5.53 4.79
Nations Intermediate Bond Investor B* -1.74 4.97 4.33
Nations Intermediate Bond Investor C 0.62 - 3.98
Nations Intermediate Bond Primary A** 0.98 5.54 4.80
Nations Intermediate Bond Primary B - - -
Nations Blue Chip Fund Investor A 17.70 26.29 22.59
Nations Blue Chip Fund Investor B* 16.83 25.99 22.36
Nations Blue Chip Fund Investor C 16.85 - 23.95
Nations Blue Chip Primary A** 20.31 26.84 23.03
</TABLE>
* Performance prior to October 21, 1996, February 28, 1997, November
20, 1996, November 11, 1996 and November 11, 1996 is represented by performance
of the A Shares (the predecessor to Investor A Shares) of the Convertible
Securities, California Municipal Bond, Intermediate Bond, Blue Chip and Asset
Allocation Funds, respectively. On the foregoing dates, K Shares (the
predecessor to Investor C Shares) of the above-listed Funds commenced
operations. K shares, unlike A shares, were sold without a front-end sales load
but had a .75% distribution or administrative service fee which would have
reduced performance if reflected.
Aggregate or Cumulative Annual Total Return
<TABLE>
<CAPTION>
5-Year Period 5-Year Period Inception Inception
FYE FYE Ending Ending through through
3/31/00 3/31/00 3/31/00 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Value Primary A -0.16 -0.16 122.46 122.46 286.46 286.46
Nations Value Primary B 0.95 0.95 - - 63.59 63.59
Nations Value Investor A -0.47 -6.20 119.70 107.04 274.20 256.56
Nations Value Investor B -1.24 -5.68 112.72 110.72 145.46 145.46
Nations Value Investor C -1.18 -2.07 114.10 114.10 179.80 179.80
Nations Capital Growth Primary A 29.90 29.90 225.35 225.35 297.31 297.31
Nations Capital Growth Primary B 30.40 30.40 - - 144.77 144.77
Nations Capital Growth Investor A 29.41 21.98 221.67 203.16 290.13 267.70
Nations Capital Growth Investor B 28.42 23.42 209.44 207.44 249.45 249.45
Nations Capital Growth Investor C 28.46 27.46 212.27 212.27 271.55 271.55
Nations MidCap Growth Primary A 75.34 75.34 219.16 219.16 291.24 291.24
Nations MidCap Growth Primary B 76.77 76.77 - - 127.68 127.68
Nations MidCap Growth Investor A 74.82 64.71 215.58 197.35 289.48 267.16
Nations MidCap Growth Investor B 73.47 68.47 203.63 201.63 269.78 269.78
Nations MidCap Growth Investor C 73.50 72.50 206.09 206.09 270.84 270.84
Nations Managed Index Primary A 15.33 15.33 - - 135.76 135.76
</TABLE>
180
<PAGE>
<TABLE>
<CAPTION>
5-Year Period 5-Year Period Inception Inception
FYE FYE Ending Ending through through
3/31/00 3/31/00 3/31/00 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Managed Index Primary B 14.70 14.70 - - 133.98 133.98
Nations Managed Index Investor A 15.04 15.04 - - 133.88 133.88
Nations Small Cap Index Primary A 22.97 22.97 - - 42.43 30.15
Nations Small Cap Index Investor A 22.67 22.67 - - 41.23 30.15
Nations Managed Value Index Primary A 8.07 8.07 - - 26.72 26.72
Nations Managed Value Index Primary B 7.05 7.05 - - 25.58 25.58
Nations Managed Value Index Investor A 7.78 7.78 - - 26.16 26.16
Nations Managed Small Cap Value Index Primary A 14.20 14.20 - - 4.81 4.81
Nations Managed Small Cap Value Index Primary B 14.05 14.05 - - 4.52 4.52
Nations Managed Small Cap Value Index Investor A 13.89 13.89 - - 4.29 4.29
Nations Aggressive Growth Fund Primary A -0.16 -0.16 163.18 163.18 332.69 332.69
Nations Aggressive Growth Fund Primary B -0.96 -0.96 - - 91.82 91.82
Nations Aggressive Growth Fund Investor A -0.41 -6.15 160.34 145.32 184.76 168.41
Nations Aggressive Growth Fund Investor B -1.19 -5.53 150.48 148.48 161.43 160.43
Nations Aggressive Growth Fund Investor C -1.16 -2.03 - - 140.02 140.02
Nations Large Cap Index Fund Primary A 17.58 17.58 222.09 222.09 259.17 259.17
Nations Large Cap Index Fund Primary B 16.00 16.00 - - 128.14 128.14
Nations Large Cap Index Fund Investor A 17.32 17.32 - - 172.17 172.17
Nations Balanced Assets Primary A 0.73 0.73 80.14 80.14 110.79 110.79
Nations Balanced Assets Primary B -1.93 -1.93 - - 35.91 35.91
Nations Balanced Assets Investor A 0.47 -5.28 78.35 68.05 107.26 95.35
Nations Balanced Assets Investor B -0.30 -5.20 72.71 70.86 84.95 84.95
Nations Balanced Assets Investor C -0.27 -1.25 73.05 73.05 97.27 97.27
Nations Short-Intermediate Government Primary A 1.63 1.63 29.63 29.63 63.96 63.96
Nations Short-Intermediate Government Primary B 1.23 1.23 - - 18.95 18.95
Nations Short-Intermediate Government Investor A 1.43 -1.92 28.34 24.31 61.52 56.43
Nations Short-Intermediate Government Investor B 0.70 -2.18 25.00 25.00 29.57 29.57
Nations Short-Intermediate Government Investor C 0.74 -0.22 25.34 25.34 39.26 39.26
Nations Short-Term Income Primary A 3.00 3.00 32.87 32.87 46.24 46.24
Nations Short-Term Income Primary B -3.47 -3.47 - - 5.85 5.85
Nations Short-Term Income Investor A 2.76 1.72 31.53 30.18 43.70 42.28
Nations Short-Term Income Investor B 2.40 -2.45 30.26 28.27 37.89 37.89
Nations Short-Term Income Investor C 1.97 1.00 29.63 29.63 40.90 40.90
Nations Strategic Income Primary A -0.95 -0.95 34.86 34.86 63.67 63.67
Nations Strategic Income Primary B -7.74 -7.74 - - 5.79 5.79
Strategic Income Investor A -1.30 -5.95 5.88 4.85 6.57 5.87
Nations Strategic Income Investor B -1.98 -6.60 29.31 27.41 39.30 39.30
Nations Strategic Income Investor C -2.04 -2.96 29.72 29.72 55.23 55.23
Nations Bond Primary A 0.97 0.97 33.95 33.95 52.29 52.29
Nations Bond Primary B -4.72 -4.72 - - 8.30 8.30
Nations Bond Investor A 0.74 -2.50 32.57 28.30 49.54 44.62
Nations Bond Investor B 0.05 -2.78 29.03 29.03 34.66 34.66
Nations Bond Investor C -0.24 -1.18 29.36 29.36 44.70 44.70
Nations Municipal Income Primary A -2.08 -2.08 32.47 32.47 80.49 80.49
Nations Municipal Income Investor A -2.28 -6.90 31.16 24.98 77.84 69.37
Nations Municipal Income Investor B -2.99 -6.71 27.19 26.19 33.52 33.52
Nations Municipal Income Investor C -3.03 -3.96 27.79 27.79 49.47 49.47
Nations Short-Term Muni Income Fund Primary A 2.58 2.58 24.58 24.58 30.15 30.15
Nations Short-Term Muni Income Fund Investor A 2.35 1.34 23.32 22.08 28.53 27.25
</TABLE>
181
<PAGE>
<TABLE>
<CAPTION>
5-Year Period 5-Year Period Inception Inception
FYE FYE Ending Ending through through
3/31/00 3/31/00 3/31/00 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Short-Term Muni Income Fund Investor B 1.99 -2.93 22.14 20.14 26.91 26.91
Nations Short-Term Muni Income Fund Investor C 1.57 0.58 21.68 21.68 26.22 26.22
Nations Interm Muni Bond Fund Primary A -0.27 -0.27 27.99 27.99 35.15 35.15
Nations Interm Muni Bond Fund Investor A -0.49 -3.77 26.72 22.59 31.86 27.57
Nations Interm Muni Bond Fund Investor B -1.18 -4.03 23.76 23.76 26.33 26.33
Nations Interm Muni Bond Fund Investor C -1.19 -2.14 24.17 24.17 32.30 32.30
Nations Florida Interm Muni Bond Primary A 0.54 0.54 27.98 27.98 44.99 44.99
Nations Florida Interm Muni Bond Investor A 0.22 -3.02 26.55 22.48 42.93 38.23
Nations Florida Interm Muni Bond Investor B -0.38 -3.25 23.69 23.69 31.61 31.61
Nations Florida Interm Muni Bond Investor C -0.26 -1.22 23.82 23.82 38.34 38.34
Nations Georgia Interm Muni Bond Primary A -0.02 -0.02 27.59 27.59 54.59 54.59
Nations Georgia Interm Muni Bond Investor A -0.27 -3.54 26.26 22.14 51.15 46.17
Nations Georgia Interm Muni Bond Investor B -0.96 -3.81 23.29 23.29 30.34 30.34
Nations Georgia Interm Muni Bond Investor C -1.13 -2.08 23.05 23.05 42.43 42.43
Nations Maryland Interm Muni Bond Primary A 0.17 0.17 26.49 26.49 72.64 72.64
Nations Maryland Interm Muni Bond Investor A -0.06 -3.29 25.20 21.18 70.06 64.47
Nations Maryland Interm Muni Bond Investor B -0.74 -3.61 22.24 22.24 28.93 28.93
Nations Maryland Interm Muni Bond Investor C -0.82 -1.78 22.12 22.12 38.85 38.85
Nations North Carolina Interm Muni Bond Primary A 0.05 0.05 27.29 27.29 43.29 43.29
Nations North Carolina Interm Muni Bond Investor A -0.18 -3.43 25.99 21.90 41.11 36.48
Nations North Carolina Interm Muni Bond Investor B -0.87 -3.73 23.03 23.03 30.26 30.26
Nations North Carolina Interm Muni Bond Investor C -0.95 -1.91 22.90 22.90 36.35 36.35
Nations South Carolina Interm Muni Bond Primary A 0.09 0.09 27.51 27.51 54.12 54.12
Nations South Carolina Interm Muni Bond Investor A -0.14 -3.36 26.22 22.07 49.70 44.77
Nations South Carolina Interm Muni Bond Investor B -0.82 -3.68 23.24 23.24 31.06 31.06
Nations South Carolina Interm Muni Bond Investor C -0.91 -1.86 23.12 23.12 41.99 41.99
Nations Tennessee Interm Muni Bond Primary A -0.67 -0.67 26.40 26.40 35.61 35.61
Nations Tennessee Interm Muni Bond Investor A -0.90 -4.11 25.11 21.06 34.66 30.23
Nations Tennessee Interm Muni Bond Investor B -1.58 -4.42 22.17 22.17 29.24 29.24
Nations Tennessee Interm Muni Bond Investor C -1.96 -2.91 21.76 21.76 30.13 30.13
Nations Texas Interm Muni Bond Primary A 0.17 0.17 26.76 26.76 40.48 40.48
Nations Texas Interm Muni Bond Investor A -0.06 -3.29 25.46 21.34 36.02 31.61
Nations Texas Interm Muni Bond Investor B -0.74 -3.60 22.52 22.52 28.48 28.48
Nations Texas Interm Muni Bond Investor C -0.86 -1.81 22.36 22.36 30.31 30.31
Nations Virginia Interm Muni Bond Primary A 0.29 0.29 27.09 27.09 80.84 80.84
Nations Virginia Interm Muni Bond Investor A 0.06 -3.20 25.80 21.73 75.60 69.87
Nations Virginia Interm Muni Bond Investor B -0.63 -3.50 22.84 22.84 29.23 29.23
Nations Virginia Interm Muni Bond Investor C -0.71 -1.66 22.71 22.71 39.48 39.48
Nations Florida Muni Bond Fund Primary A 0.26 0.26 32.38 32.38 32.41 32.41
Nations Florida Muni Bond Fund Investor A 0.04 -4.73 31.04 24.82 30.02 23.82
Nations Florida Muni Bond Fund Investor B -0.67 -4.49 27.08 26.08 25.66 25.66
Nations Florida Muni Bond Fund Investor C -0.73 -1.68 27.53 27.53 41.90 41.90
Nations Georgia Muni Bond Fund Primary A -1.27 -1.27 32.07 32.07 29.82 29.82
Nations Georgia Muni Bond Fund Investor A -1.50 -6.13 30.47 24.25 28.71 22.57
Nations Georgia Muni Bond Fund Investor B -2.19 -5.96 26.78 25.78 24.95 24.95
Nations Georgia Muni Bond Fund Investor C -2.29 -3.24 27.11 27.11 41.14 41.14
Nations Maryland Municipal Bond Fund Primary A -0.25 -0.25 31.47 31.47 39.10 39.10
Nations Maryland Municipal Bond Fund Investor A -0.49 -5.23 30.13 23.90 30.87 24.64
Nations Maryland Municipal Bond Fund Investor B -1.19 -5.00 26.19 25.19 23.45 23.45
</TABLE>
182
<PAGE>
<TABLE>
<CAPTION>
5-Year Period 5-Year Period Inception Inception
FYE FYE Ending Ending through through
3/31/00 3/31/00 3/31/00 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Maryland Municipal Bond Fund Investor C -1.23 -2.18 26.70 26.70 39.98 39.98
Nations North Carolina Muni Bond Fund Primary A -0.98 -0.98 31.31 31.31 29.06 29.06
Nations North Carolina Muni Bond Fund Investor A -1.20 -5.87 29.96 23.79 29.87 23.67
Nations North Carolina Muni Bond Fund Investor B -1.90 -5.68 26.05 25.05 24.64 24.64
Nations North Carolina Muni Bond Fund Investor C -1.99 -2.93 26.42 26.42 40.95 40.95
Nations South Carolina Muni Bond Fund Primary A -0.72 -0.72 31.34 31.34 33.34 33.34
Nations South Carolina Muni Bond Fund Investor A -0.95 -5.62 29.99 23.85 34.60 28.23
Nations South Carolina Muni Bond Fund Investor B -1.65 -5.43 26.08 25.08 28.01 28.01
Nations South Carolina Muni Bond Fund Investor C -1.71 -2.66 26.47 26.47 40.18 40.18
Nations Tennessee Municipal Bond Fund Primary A -1.36 -1.36 31.53 31.53 36.81 26.81
Nations Tennessee Municipal Bond Fund Investor A -1.59 -6.24 30.17 23.96 33.41 27.11
Nations Tennessee Municipal Bond Fund Investor B -2.28 -6.04 26.27 25.27 26.92 26.92
Nations Tennessee Municipal Bond Fund Investor C -2.35 -3.29 26.65 26.65 40.70 40.70
Nations Texas Municipal Bond Fund Primary A -0.63 -0.63 33.17 33.17 30.27 30.27
Nations Texas Municipal Bond Fund Investor A -0.86 -5.53 31.80 25.51 30.65 24.50
Nations Texas Municipal Bond Fund Investor B -1.56 -5.34 27.83 26.83 25.58 25.58
Nations Texas Municipal Bond Fund Investor C -1.62 -2.57 28.21 28.21 41.88 41.88
Nations Virginia Municipal Bond Fund Primary A -0.69 -0.69 32.83 32.83 29.67 29.67
Nations Virginia Municipal Bond Fund Investor A -1.02 -5.74 31.33 25.15 31.13 24.91
Nations Virginia Municipal Bond Fund Investor B -1.61 -5.40 27.50 26.50 24.45 24.45
Nations Virginia Municipal Bond Fund Investor C -1.58 -2.53 27.94 27.94 42.03 42.03
</TABLE>
Fee waivers and/or expense reimbursements were in effect for the periods
presented. Primary B Shares were not offered during the period described above.
<TABLE>
<CAPTION>
10 Year Period 10 Year Period
Ended 3/31/00 Ended 3/31/00
or Inception or Inception
FYE FYE Year Period Year Period through through
3/31/00 3/31/00 Ended 3/31/00 Ended 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Equity Income Primary A 4.51 4.51 86.69 86.69 185.80 185.80
Nations Equity Income Primary B 3.31 3.31 - - 39.35 39.35
Nations Equity Income Investor A 4.26 -1.73 84.49 73.91 177.90 161.98
Nations Equity Income Investor B 3.43 -1.57 78.63 76.63 102.85 102.85
Nations Equity Income Investor C 3.46 2.46 79.61 79.61 132.36 132.36
Nations International Equity Primary A 39.85 39.85 104.23 104.23 142.54 142.54
Nations International Equity Primary B 55.83 55.83 - - 84.77 84.77
Nations International Equity Investor A 39.54 31.53 102.05 90.43 128.14 115.09
Nations International Equity Investor B 38.14 33.14 94.22 92.22 112.52 112.52
Nations International Equity Investor C 38.12 37.12 95.09 95.09 121.26 121.26
Nations Government Securities Primary A 1.12 1.12 32.02 32.02 66.80 66.80
Nations Government Securities Primary B -4.34 -4.34 - - 10.54 10.54
Nations Government Securities Investor A 0.80 -3.97 30.31 24.10 63.18 55.42
Nations Government Securities Investor B 0.22 -3.59 27.08 26.11 29.19 29.19
Nations Government Securities Investor C -0.22 -1.17 26.72 26.72 36.18 36.18
Nations International Growth Fund Primary A 22.22 22.22 92.05 92.05 119.35 119.35
</TABLE>
183
<PAGE>
<TABLE>
<CAPTION>
10 Year Period 10 Year Period
Ended 3/31/00 Ended 3/31/00
or Inception or Inception
FYE FYE Year Period Year Period through through
3/31/00 3/31/00 Ended 3/31/00 Ended 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations International Growth Fund Primary B 63.35 63.35 - - 93.84 93.84
Nations International Growth Fund Investor A 22.18 15.16 90.20 79.29 137.21 123.55
Nations International Growth Fund Investor B 20.66 16.19 - - 44.75 42.46
Nations International Growth Fund Investor C 20.67 19.77 - - 36.56 36.56
</TABLE>
* Primary A Shares of the Company do not carry a sales charge.
Aggregate Annual Total Return
<TABLE>
<CAPTION>
5-Year period 5-Year period Inception Inception
FYE FYE ending ending through through
3/31/00 3/31/00 3/31/00 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Convertible Securities Investor A 39.38 31.38 163.63 148.49 625.78 584.23
Nations Convertible Securities Investor B* 38.28 33.28 160.69 158.69 617.69 617.69
Nations Convertible Securities Investor C 38.39 37.39 - - 88.95 88.95
Nations Convertible Securities Primary A** 41.14 41.14 166.95 166.95 634.93 634.93
Nations Asset Allocation Fund Investor A 10.65 4.27 127.99 114.92 141.87 128.01
Nations Asset Allocation Fund Investor B* 9.77 4.77 125.27 123.27 138.98 138.98
Nations Asset Allocation Fund Investor C 9.75 8.75 - - 65.46 65.46
Nations Asset Allocation Fund Primary A** 12.18 12.18 131.16 131.16 145.22 145.22
Nations California Muni Bond Fund Investor A -1.37 -6.06 30.53 24.27 218.98 203.91
Nations California Muni Bond Fund Investor B* -2.03 -6.72 28.57 26.58 214.21 214.21
Nations California Muni Bond Fund Investor C - - - - -2.37 -3.31
Nations California Muni Bond Fund Primary A** -1.36 -1.36 30.54 30.54 219.02 219.02
Nations Intermediate Bond Investor A 0.92 -2.34 30.88 26.59 33.51 29.12
Nations Intermediate Bond Investor B* -1.74 -6.51 30.54 28.61 29.99 29.99
Nations Intermediate Bond Investor C 0.62 -0.35 - - 13.99 13.99
Nations Intermediate Bond Primary A** 0.98 0.98 30.96 30.96 33.59 33.59
Nations Blue Chip Fund Investor A 17.70 10.95 221.23 202.68 254.38 233.90
Nations Blue Chip Fund Investor B* 16.83 11.83 217.42 215.42 250.19 250.19
Nations Blue Chip Fund Investor C 16.85 15.85 - - 106.79 106.79
Nations Blue Chip Primary A** 20.31 20.31 228.34 228.34 262.23 262.23
</TABLE>
* Performance prior to July 15, 1998 is represented by performance of the
Investor A Shares of the Convertible Securities, California Municipal Bond,
Intermediate Bond, Blue Chip and Asset Allocation Funds Investor B Shares.
**Performance prior to May 21, 1999 is represented by performance of the
Investor A Shares of the Convertible Securities, California Municipal Bond,
Intermediate Bond, Blue Chip and Asset Allocation Funds Primary A Shares.
<TABLE>
<CAPTION>
10 Year Period 10 Year Period
Ended 3/31/00 Ended 3/31/00
or Inception or Inception
FYE FYE 5 Year Period 5 Year Period through through
3/31/00 3/31/00 Ended 3/31/00 Ended 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Convertible Securities Investor A 39.38 31.38 163.63 148.49 407.93 378.70
Nations Convertible Securities Investor B* 38.28 33.28 160.69 158.69 402.27 402.27
</TABLE>
184
<PAGE>
<TABLE>
<CAPTION>
10 Year Period 10 Year Period
Ended 3/31/00 Ended 3/31/00
or Inception or Inception
FYE FYE 5 Year Period 5 Year Period through through
3/31/00 3/31/00 Ended 3/31/00 Ended 3/31/00 3/31/00 3/31/00
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nations Convertible Securities Investor C 38.39 37.39 - - 88.95 88.95
Nations Convertible Securities Primary A** 41.14 41.14 166.95 166.95 414.33 414.33
Nations Asset Allocation Fund Investor A 10.65 4.27 127.99 114.92 141.87 128.01
Nations Asset Allocation Fund Investor B* 9.77 4.77 125.27 123.27 138.98 138.98
Nations Asset Allocation Fund Investor C 9.75 8.75 - - 65.46 65.46
Nations Asset Allocation Fund Primary A** 12.18 12.18 131.16 131.16 145.22 145.22
Nations California Muni Bond Fund Investor A -1.37 -6.06 30.53 24.27 87.75 78.82
Nations California Muni Bond Fund Investor B* -2.03 -6.72 28.57 26.58 84.94 84.94
Nations California Muni Bond Fund Investor C - - - - -2.37 -3.31
Nations California Muni Bond Fund Primary A** -1.36 -1.36 30.54 30.54 87.77 87.77
Nations Intermediate Bond Investor A 0.92 -2.34 30.88 26.59 33.51 29.12
Nations Intermediate Bond Investor B* -1.74 -6.51 30.54 28.61 29.99 29.99
Nations Intermediate Bond Investor C 0.62 -0.35 - - 13.99 13.99
Nations Intermediate Bond Primary A** 0.98 0.98 30.96 30.96 33.59 33.59
Nations Blue Chip Fund Investor A 17.70 10.95 221.23 202.68 254.38 233.90
Nations Blue Chip Fund Investor B* 16.83 11.83 217.42 215.42 250.19 250.19
Nations Blue Chip Fund Investor C 16.85 15.85 - - 106.79 106.79
Nations Blue Chip Primary A** 20.31 20.31 228.34 228.34 262.23 262.23
</TABLE>
* Performance Prior to July 15, 1998 is represented by performance of the
Investor A Shares of the Convertible Securities, California Municipal Bond,
Intermediate Bond, Blue Chip and Asset Allocation Funds Investor B Shares.
** Performance Prior to May 21, 1999 is represented by performance of the
Investor A Shares of the Convertible Securities, California Municipal Bond,
Intermediate Bond, Blue Chip and Asset Allocation Funds Primary A Shares.
* Primary A Shares of the Trust do not carry a sales charge.
MISCELLANEOUS
-------------
Certain Record and Beneficial Holders
The name, address and percentage of ownership of each person who is
known by the Registrant to have owned of record or beneficially five percent or
more of any of the Funds as of July 7, 2000 is:
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
Cash Reserves LEGG MASON WOOD WALKER INC., Investor C; 141,223.870; R 53.07 0.00
PO BOX 1476
BALTIMORE, MD 21202
NFSC FEBO # W76-802093 Investor C; 23,388.350; B 8.79 0.00
NFSC/FMTC IRA ROLLOVER
FBO CHARLES H GRIFFITH
PO BOX 325
AVERY CA 9522
NFSC FEBO # W61-023744 Investor C; 22,546.200; B 8.47 0.00
SHIRLEY DAMERON
930 N TAMIAMI TRAIL #1013
SARASOTA, FL 34236
</TABLE>
185
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
4 NFSC FEBO # W76-802085 Investor C; 19,053.850; B 7.16 0.00
NFSC/FMTC IRA ROLLOVER
FBO MARJORIE A GRIFFITH
PO BOX 325
AVERY CA 95224
SECURITY PACIFIC CASH MANAGEMENT Advisor; 850,324,700.000; R 19.34 2.24
BAMTRA DFLT
C/O BANK OF AMERICA-GPO M/C 5533 ATTN
REGINA OLSEN
1850 GATEWAY BLVD # 5533
CONCORD CA 94520-3275
NATIONAL FINANCIAL SERVICES CORP Advisor; 376,000,745.880; B 8.55 0.99
FBO OF OUR EXCULSIVE CUSTOMERS
ATTN MUTUAL FUND DEPT-5 TH FLR
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST FL FLR
NEW YORK, NY 10281
NATIONAL FINANCIAL SERVICES CORP Daily; 5,665,811,132.540; B 55.20 14.93
FBO OF OUR EXCULSIVE CUSTOMERS
ATTN MUTUAL FUND DEPT-5 TH FLR
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST FL FLR
NEW YORK NY 10281
BA INVESTMENT SERVICES INC FOR THE Daily; 2,838,908,908.250; B 27.66 7.48
BENEFIT OF CUSTOMERS
UNIT 17852
ATTN H DAVID JONES 3RD
PO BOX 7042
SAN FRANCISCO CA 94120
NATIONSBANK SWP DISBURSEMENT NC Service; 201,500,000.000; R 34.87 0.53
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
BANK OF AMERICA NA 000087 TXTRUST Capital; 1,271,766,776.870; R 13.90 3.35
ATTN TONY FARRER
1401 ELM STREET 11TH FLOOR
DALLAS TX 75202-2911
THE BANK OF NEW YORK Capital; 1,150,500,000.000; B 12.57 3.03
AS AGENT FOR ITS SECURITIES
LENDING CUSTOMERS
101 BARCLAY ST
NEW YORK NY 10286
SIEBEL SYSTEMS INC Capital; 558,445,366.050; R 6.10 1.47
ATTN DOUGLAS D REED
1855 S GRANT ST
SAN MATEO CA 94402-7016
SILICON VALLEY BANK Investor; 86.79 17.13
ATTN: JESS R GUTIERREZ 6,500,923,713.600; R
3003 TASMAN DRIVE MSHG 110
SANTA CLARA CA 95054
NATIONAL FINANCIAL FOR THE Investor; 727,414,173.020; B 9.71 1.92
EXCLUSIVE BENEFIT OF OUR
</TABLE>
186
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS 5TH FLR
NEW YORK NY
NATIONSBANK SWP DISBURSEMENT NC Market; 2,726,000,000.000; R 99.25 7.18
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
NATIONSBANK OF TEXAS NA AGENT FBO Liquidity; 517,825,410.740; B 32.43 1.36
GLOBAL FINANCE SWEEP CUSTOMERS
ATTN: STEVEN EDWARDS
1201 MAIN ST TX1-609-21-04
DALLAS TX 75202
PANTELLOS CORPORATION Liquidity; 80,446,621.680; R 5.04 0.21
14 SWIFTSTREAM PL
SPRING TX 77381-4065
BANK OF AMERICA NA Trust; 1,728,891,817.270; R 100.00 4.56
ATTN TONY FARRER
1401 ELM STREET 11TH FLOOR
DALLAS TX 75202-2911
NFSC FEBO # W27-003131 Investor B; 559,088.120; B 5.14 0.00
RONALD B BEASLEY
LYNN J BEASLEY
161 H W HARTLEY DRIVE
HIGH POINT NC 27265
Treasury Reserves STEPHENS INC ATTN: CINDY COLE Investor C; 10.000; R 100.00 0.00
111 CENTER STREET
LITTLE ROCK AR 72201
SECURITY PACIFIC CASH MANAGEMENT Advisor; 173,385,700.000; R 5.53 2.00
BAMTRA DFLT
C/O BANK OF AMERICA GPO M/C 5533
ATTN REGINA OLSEN
1850 GATEWAY BLVD # 5533
CONCORD CA 94520-3275
NATIONAL FINANCIAL FOR THE Daily; 232,989,251.320; B 26.68 2.67
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
DELL FINANCIAL SERVICES LP Daily; 53,670,566.510; R 6.15 0.61
ATTN GENEVA COCHRAN
14050 SUMMIT PARK DRIVE
STE 101
AUSTIN TEXAS 78728
NATIONSBANK SWP DISBURSEMENT NC Service; 102,000,000.000; R 43.50 1.17
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
</TABLE>
187
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
B OF A CALIFORNIA Service; 30,000,000.000; R 12.79 0.34
TREASURY Y CLASS
SEAN EHRLICH
2044 FRANKLIN ST
OAKLAND CA 94612-2908
ALAMEDA CORRIDOR TRANSPORTATION Service; 27,412,705.000; R 11.69 0.03
AUTH ATTN KEN PHIPPS ACTING
CONTROLLER
1 CIVIC PLAZA DR, STE 650
CARSON CA 90745-7983
TURTLE & CO A/C 125039-010 Capital; 381,018,669.400; R 25.13 4.37
ATTN MARIE TARDIF
PO BOX 9427
BOSTON MA 02209-9427
KPMG PEAT MARWICK LLP Capital; 150,000,000.000; R 9.90 1.72
ATTN HARVEY SKOLNICK
3 CHESTNUT RIDGE RD
MONTVALE NJ 07645-1842
BANC OF AMERICA LLC Capital; 132,309,167.640; R 8.73 1.51
ATTN MUTUAL FUNDS
600 MONTGOMERY ST
SAN FRANCISCO CA 94111
SILICON VALLEY BANK Investor; 719,478,170.300; R 65.19 8.25
ATTN: JESS R GUTIERREZ
3003 TASMAN DRIVE, MSHG 110
SANTA CLARA CA 95054
THE CHICAGO TRUST COMPANY Investor; 202,834,392.760; R 18.38 2.32
ATTN MARY CUNNINGHAM
171 N CLARK STREET, 9TH FLOOR
CHICAGO IL 60601
HARE & CO, BANK OF NEW YORK Investor; 99,779,919.600; R 9.04 1.14
ATTN STIF/MASTER NOTE
ONE WALL STREET, 2ND FL
NEW YORK NY 10286
NATIONAL FINANCIALFOR THE EXCLUSIVE Investor; 62,345,185.290; B 5.65 0.70
BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
NATIONSBANK SWP DISBURSEMENT NC Market; 1,451,000,000.000; R 100.00 16.63
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
NATIONSBANK OF TEXAS NA Liquidity; 115,766,674.490; B 28.31 1.33
AGENT FBO
GLOBAL FINANCE SWEEP CUSTOMERS
ATTN: STEVEN EDWARDS
1201 MAIN ST TX1-609-21-04
DALLAS TX 75202
PRIMUS TELECOMMUNICATIONS Liquidity; 44,633,157.130; R 10.91 0.51
</TABLE>
188
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
INTERNATIONAL INC
ATTN ANDY DOLAN
1700 OLD MEADOW RD, STE 300
MCLEAN VA 22102-4302
NATIONSBANK SWP DISBURSEMENT NC Liquidity; 40,000,000.000; R 9.78 0.45
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
ECT SECURITIES LTD PARTNERSHIP Liquidity; 24,795,656.840; R 6.06 0.28
C/O ENRON CORP
ATTN DONNA LOWRY EB 2881
P O BOX 1188
HOUSTON TX 77251-1188
NFSC FEBO # W26-717517 HAZEL M BISH Investor B; 80,840.590; B 61.50 0.00
18345 ADARE LANE
ABINGDON VA 24210
NFSC FEBO # W14-618039 SUSIE BEARD Investor B; 50,588.820; B 38.49 0.00
ELLA P BEARD
946 DEWEY ST SW
ATLANTA GA 30310
Government NFSC FEBO # W19-046647 Investor C; 147,712.060; B 96.05 0.00
Reserves ROSA EZRATTI
C/O PAUL CORBIN
1401 UNIVERSITY DRIVE
# 200
CORAL SPRINGS FL 33071
NATIONAL FINANCIAL FOR THE Advisor; 102,747,924.920; B 23.22 5.01
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
PENN-CAL CO Advisor; 31,233,633.860; R 7.06 1.52
ATTN HARRY KOMSKY
3 DEL AMO FASHION CTR
TORRANCE CA 90503-5711
CARSON-MADRONA CO Advisor; 24,844,592.180; R 5.61 1.21
3 DEL AMO FASHION CTR
TORRANCE CA 90503-5711
NATIONAL FINANCIAL FOR THE EXCLUSIVE Daily; 183,549,857.300; B 100.00 8.96
BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
NATIONSBANK SWP DISBURSEMENT NC Service; 19,000,000.000; R 100.00 0.93
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
</TABLE>
189
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
TURTLE & CO A/C Capital; 120,327,547.940; R 24.90 5.87
ATTN MARIE TARDIF
PO BOX 9427
BOSTON MA 02209-9427
NC JOINT UNDERWRITING BEACH PLAN Capital; 36,871,903.580; R 7.63 1.80
PO BOX 12500
RALEIGH NC 27605
VARIAN INC Capital; 30,472,462.540; R 6.31 1.48
ATTN GRETCHEN MEYER
3120 HANSEN WAY
MLS D-083
PALO ALTO CA 94304
MUSICMAKER.COM INC Capital; 28,353,689.580; R 5.87 1.38
ATTN MARK FOWLER
1831 WIEHLE AVENUE, STE 128
RESTON VA 20190
FLAGLER CO BOARD OF Capital; 28,029,487.610; R 5.82 1.37
COMMISSIONERS #1 FUND
PO BOX 787
201 EAST MOODY BLVD
BUNNELL FL 32110
REESE M ROWLING Capital; 26,914,354.560; R 5.57 1.31
500 N WATER ST, SUITE 1100N
CORPUS CHRISTI TX 78471-0000
NATIONAL FINANCIAL FOR THE EXCLUSIVE Investor; 77,954,314.460; B 75.98 3.80
BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
HARE & CO, BANK OF NEW YORK Investor; 13,874,249.380; R 13.52 0.68
ATTN STIF/MASTER NOTE
ONE WALL STREET 2ND FL
NEW YORK NY 10286
NATIONSBANK SWP DISBURSEMENT NC Market; 382,000,000.000; R 100.00 18.63
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
BANC OF AMERICA LLC Liquidity; 226,058,590.260; R 71.78 11.03
ATTN MUTUAL FUNDS
600 MONTGOMERY ST
SAN FRANCISCO CA 94111
NATIONSBANK SWP DISBURSEMENT NC Liquidity; 20,000,000.000; R 6.35 0.97
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
MICHAEL S EGAN Liquidity; 19,106,422.650; R 6.07 0.93
ATTN ROBIN SEGAUEL
333 EAST LAS OLAS BLVD
FORT LAUDERDALE FL 33301
</TABLE>
190
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
BANK OF AMERICA NA Trust; 121,086,099.960; R 100.00 5.91
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NFSC FEBO # W14-872490 NFSC/FMTC IRA Investor B; 207,966.390; B 65.52 0.01
FBO DONNIE DOLLAR
295 HARDY RD
BROOKS GA 30205
BNY CUST IRA FBO CULLEN J FERGUSON Investor B; 65,514.460; B 20.64 0.00
4803 FAWN VALLEY COURT
ARLINGTON TX 76017-0000
NFSC FEBO # W26-660612 NFSC/FMTC IRA Investor B; 25,559.240; B 8.05 0.00
ROLLOVER
FBO HARRY H WALKER
19810 EANES RD
PETERSBURG VA 23803
Municipal BANC OF AMERICA LLC Advisor; 21,573,895.720; R 20.67 3.00
Reserves ATTN MUTUAL FUNDS
600 MONTGOMERY ST
SAN FRANCISCO CA 94111
NATIONAL FINANCIAL FOR THE Advisor; 18,430,276.390; B 17.66 2.56
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
HERITAGE BAG COMPANY Advisor; 7,773,523.890; R 7.45 1.08
1648 DIPLOMAT DRIVE
CARROLLTON TX 75006-684
4 PHIL MCDANIEL Advisor; 6,164,546.080; R 5.91 0.86
51 WATER STREET
ST AUGUSTINE FL 32084-0000
NATIONAL FINANCIAL FOR THE Daily; 475,288,554.570; B 88.45 66.21
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
BA INVESTMENT SERVICES INC Daily; 62,051,050.900; B 11.55 8.60
FOR THE BENEFIT OF CUSTOMERS
UNIT 17852
ATTN H DAVID JONES 3RD
PO BOX 7042
SAN FRANCISCO CA 94120
BANK OF AMERICA NA Capital; 55,694,037.130; R 27.97 7.76
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
MUNI MAE TE BOND SUBSIDIARY LLC Capital; 29,820,660.380; R 14.97 6.14
ATTN JUNE BECK
218 N CHARLES ST
BALTIMORE MD 21201-4021
</TABLE>
191
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
NATIONS NORTH CAROLINA INTERMEDIATE Capital; 18,877,000.000; R 9.48 4.15
MUNICIPAL
BOND FUND 51-0342673
ATTN DEL LUCAS
101 S TRYON STREET NC1-002-33-31
CHARLOTTE NC 28255
NATIONS MUNICIPAL INCOME FUND Capital; 17,005,000.000; R 8.54 2.37
51-0331215
ATTN DEL LUCAS
101 S TRYON STREET NC1-002-33-31
CHARLOTTE NC 28255
NATIONS INTERMEDIATE MUNICIPAL BOND Capital; 10,255,000.000; R 5.15 1.42
020000 000000001 0035029800
10,255,000.000 10,255,000.00 5.1493
043187336
ATTN DEL LUCAS
101 S TRYON STREET NC1-002-33-31
CHARLOTTE NC 28255
NATIONAL FINANCIAL FOR THE Investor; 44,257,918.740; B 78.83 6.16
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
BA INVESTMENT SERVICES INC Investor; 10,475,116.030; B 18.66 1.53
FOR THE BENEFIT OF CUSTOMERS
UNIT 17852
ATTN H DAVID JONES 3RD
PO BOX 7042
SAN FRANCISCO CA 94120
NFSC FEBO # W26-716898 CHARLES Investor B; 48,115.640; B 52.55 0.00
CLENDENENE TTEE
CHARLES CLENDENEN REV TR
U/A 8/9/96
11648 WALLACE PL
BRISTOL VA 24202
NFSC FEBO # W27-746380 Investor B; 32,363.500; B 35.34 0.00
SWEET JANE'S INC
4823 MEADOW DRIVE, SUITE 210
DURHAM NC 27713
NFSC FEBO # W26-738484 Investor B; 11,053.870; B 12.07 0.00
BARBARA C TAYLOR
250 ARROW LANE
WYTHEVILLE VA 24382
Money Market STEPHENS NATIONAL FINANCIAL FOR THE Daily; 4,710,522.070; B 99.87 0.22
Reserves EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
NATIONSBANK SWP DISBURSEMENT NC Service; 84,500,000.000; R 53.31 4.01
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
</TABLE>
192
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
VAR & CO (US BANK TRUST NA) Service; 74,013,370.000; R 46.69 3.51
US BANK TRUST
ATTN CASH SWEEP SPEN0603
180 E 5TH ST
ST PAUL MN 55101
STATE STREET BANK & TRUST CO AS TTE Investor; 7,002,368.220; B 99.99 0.33
FOR HASKELL HOUSE SENIOR LIVING
SERIES 2000
ATTN SHAREHOLDER SERVICING GROUP
9777 WILSHIRE BLVD STE 800
BEVERLY HILLS CA 90212
NATIONSBANK SWP DISBURSEMENT NC Market; 1,428,000,000.000; R 100.00 67.75
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
MACK HOLDING CO INC Liquidity; 43,775,053.560; R 8.66 2.08
ATTN TOM GAYLORD
608 WARM BROOK ROAD
ARLINGTON VT 05250
WORLDSPACE MANAGEMENT CORP Liquidity; 35,500,000.000; R 7.03 1.68
C/O JAMES LYNCH
2400 N STREET NW
WASHINGTON DC 20037
ENERGY INSURANCE MUTUAL LTD Liquidity; 33,305,752.580; R 6.55 1.57
ATTN SAM GARVIN
6200 COURTNEY CAMPBELL C-HWY
STE 550
TAMPA FL 33607
AETHER SYSTEMS INC Liquidity; 30,729,662.110; R 6.08 1.45
ATTN FINANCE DEPT
11460 CONRIDGE DRIVE
SUITE 106
OWINGS MILLS MD 21117
E-MEDSOFT.COM Liquidity; 27,046,108.570; R 5.35 1.28
ATTN MARGARET A HARRIS
20750 VENTURA BLVD, STE 320
WOODLAND HILLS CA 91364
VAR & CO (US BANK TRUST NA) Trust; 1,274,857.000; R 95.25 0.06
US BANK TRUST
ATTN CASH SWEEP SPEN0603
180 E 5TH ST
ST PAUL MN 55101
NFSC FEBO W40-749419 Investor B; 265,742.220; B 10.24 0.01
LING-YU HWANG YU
HSIN HUI WANG
GAI-MENG JEFF HWANG
6025 LAKEHURST CT
ARLINGTON TX 76016-1025
NFSC FEBO # W16-005053 Investor B; 163,147.640; B 6.29 0.00
NFSC/FMTC IRA ROLLOVER
FBO MARION W GRIFFIN
716 SOUTH PARK ST
</TABLE>
193
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
ASHEBORO NC 27203
NFSC FEBO # W73-002810 Investor B; 156,117.710; B 6.01 0.00
NFSC/FMTC IRA ROLLOVER
FBO LAWRENCE W NELSON
243 ABOGADO AV
WALNUT CA 91789
NFSC FEBO # W53-018619 NFSC/FMTC IRA Investor B; 153,852.420; B 5.93 0.00
ROLLOVER
FBO THOMAS E COX
413 SOUTHGATE DR
NIXA MO 65714
NFSC FEBO # W16-698440 Investor B; 148,575.460; B 5.72 0.00
NFSC/FMTC IRA
FBO WILLIAM H FIELDS
1701 LYNWOOD DR
GREENSBORO NC 27406
Government Money NATIONAL FINANCIAL FOR THE EXCLUSIVE Investor A; 5,489,418.370; B 57.53 1.43
Market Fund BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
M. MICHAEL MOSCONE TTEE Investor A; 1,118,545.590; R 11.72 0.29
BRUCE KAYE TTEE U/A DTD 5/1/96
BY M. MICHAEL MOSCONE
CHARITABLE REMAINDER TRUST #1
382 CRANBROOK CT
BLOOMFIELD MI 48304
MONTROSE LIMITED PARTNERSHIP 382 Investor A; 903,046.280; R 9.46 0.23
CRANBROOK CT
BLOOMFIELD MI 48304
CAIRUS HOLDINGS INC. Investor A; 607,094.690; R 6.36 0.16
1500 BANKERS HALL
855-2ND ST SW
CALGARY, ALBERTA
CANADA T2P4J7
GILLAM & ASSOCIATES INC Investor A; 546,492.710 5.72 0.14
ATTN STEPHEN RAWSON
405 FABIAN DR
AIKEN SC
FASKEN LTD Investor B; 23,006,402.940; R 27.21 5.98
303 W WALL AVE STE 1900
MIDLAND TX 79701
FASKEN LAND AND MINERALS LTD Investor B; 8,323,605.080; R 9.84 2.16
303 W WALL AVE, SUITE 1900
MIDLAND TX 79701
COLUMBIA COUNTY CAPITAL Investor B; 6,538,569.880; R 7.73 1.70
PROJECT FUND
ATTN JUDY LEWIS
PO BOX 1529
LAKE CITY FL 32056
FASKEN OIL AND RANCH LTD Investor B; 6,377,687.080; R 7.54 1.65
</TABLE>
194
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
303 W WALL AVE, STE 1900
MIDLAND TX 79701
RELATED PR INC Investor B; 5,467,164.630; R 6.46 1.42
ATTN FRANCISCO MATUTE
2828 CORAL WAY PH
MIAMI FL 33145
COLUMBIA COUNTY GENERAL FUND Investor B; 4,811,445.090; R 5.69 1.25
ATTN JUDY LEWIS
PO BOX 1529
LAKE CITY FL 32056-0000
NFSC FEBO # W69-008842 NFSC/FMTC IRA Investor C; 444,122.380; B 95.57 0.11
ROLLOVER
FBO THOMAS S SPADARO
3325 BRANCH CREEK DRIVE
SARASOTA FL 34235
BANK OF AMERICA NA Primary A; 261,894,497.770; R 96.16 68.06
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NATIONAL FINANCIAL FOR THE Daily; 16,173,460.000; R 95.31 0.23
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
Tax Exempt Fund NATIONAL FINANCIAL FOR THE Investor A; 34,403,984.780; B 84.11 1.40
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
HARE & CO, BANK OF NEW YORK Investor B; 11,915,140.130; R 6.08 0.48
ATTN STIF/MASTER NOTE
ONE WALL STREET, 2ND FL
NEW YORK NY 102
HERBERT W LINDAHL Investor B; 11,486,568.340; R 5.87 0.45
P O BOX 120022
NASHVILLE TN 37212-0022
ROBERT B ROWLING Investor B; 11,020,308.480; R 5.62 0.43
INCOME TAX ESCROW ACCOUNT
420 DECKER DR
IRVING TX 75062
LIDA M TINGLEY AND Investor B; 10,324,748.680; R 5.27 0.41
CHARLES ELBERT TINGLEY JTWROS
25 STANWICH RD
GREENWICH CT 06830-0000
NFSC FEBO # W16-624101 Investor C; 204,611.940; B 62.31 0.00
ALFRED K SAMPSON
527 NC HWY 150 WEST
GREENSBORO NC 27455
NFSC FEBO # W16-625205 CALVIN H PRICE Investor C; 50,744.990; B 15.45 0.00
DOROTHY W PRICE
</TABLE>
195
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
2900 OLD WELL LANE
GASTONIA NC 28054
NFSC FEBO # W14-795372 MONTESE B GUINN Investor C; 42,284.230; B 12.88 0.00
MONTESE B GUINN
560 GEORGIA AV
BANK OF AMERICA NA Primary A; 99.37 85.48
ATTN TONY FARRER 2,115,522,886.380; R
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA Primary B; 6,274,752.660; R 100.00 0.25
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NATIONAL FINANCIAL FOR THE Daily; 101,890,255.630; B 99.58 4.12
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
Prime Fund NATIONAL FINANCIAL FOR THE 5226 Investor A; 73.15 8.02
EXCLUSIVE BENEFIT OF OUR CUSTOMERS 387,906,227.630; B
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10
NFSC FEBO # W26-003808 HERBERT MAXEY JR Investor C; 574,165.680; B 8.47 0.01
NANCY A MAXEY
P O BOX 257
BUCKINGHAM VA 239
BANK OF AMERICA NA Primary A; 98.79 64.13
ATTN TONY FARRER 3,094,178,197.700; R
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA Primary B; 12,046,522.260; R 100.00 0.25
ATTN TONY FARRER (B SHARES)
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NATIONAL FINANCIAL FOR THE Daily; 1,094,551,763.980; B 98.45 22.66
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
SUNSTONE FINANCIAL GROUP INC AS AGT Marsico; 19,541,783.690; R 100.00 0.40
FOR MARISCO FUNDS INC
207 E BUFFALO, STE 400
MILWAUKEE WI 53202
Treasury Fund HARE & CO, BANK OF NEW YORK Investor A; 93.27 47.63
ATTN STIF/MASTER NOTE 833,801,271.370; R
ONE WALL STREET, 2ND FL
NEW YORK NY 10286
</TABLE>
196
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
HARE & CO, BANK OF NEW YORK Investor B; 81,638,464.780; R 38.95 4.66
ATTN STIF/MASTER NOTE
ONE WALL STREET, 2ND FL
NEW YORK NY 10286
N F SMITH & ASSOCIATES LP Investor B; 20,447,611.580; R 9.76 1.17
5306 HOLLISTER
HOUSTON TX 77040
NFSC FEBO # W52-725021 NFSC/FMTC IRA Investor C; 53,227.710; B 47.43 0.00
FBO RETHA C WHITEHEAD
5226 GARFIELD AV
KANSAS CITY MO 64130
NFSC FEBO # W32-608246 Investor C; 18,460.430; B 16.45 0.00
NFSC/FMTC IRA
FBO DONALD E PAUL
3407 SHADOWOOD DRIVE
VALRICO FL 3
NFSC FEBO # W13-643629 NFSC/FMTC IRA Investor C; 12,610.490; B 11.24 0.00
FBO MAUREEN D MATRICARDI
8004 CARRLEIGH PKWY
SPRINGFIELD VA 22152
NFSC FEBO # W13-643637 NFSC/FMTC IRA Investor C; 12,610.490; B 11.24 0.00
FBO EDMUND A MATRICARDI JR
8004 CARRLEIGH PKWY
SPRINGFIELD VA 22152
NFSC FEBO # W14-607207 NFSC/FMTC IRA Investor C; 10,969.740; B 9.78 0.00
ROLLOVER
FBO JAMES A COX
2015 ASHTON POINTE DR
DACULA GA 30019
BANK OF AMERICA NA Primary A; 521,256,775.300; R 99.49 29.78
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA Primary B; 9,459,520.540; R 100.00 0.54
ATTN TONY FARRER (B SHARES)
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-29
NATIONSBANK SWP DISBURSEMENT INC Daily; 58,900,000.000; R 52.10 3.36
NATIONSBANK SWEEP/AUTOBORROW
FIRST CITIZENS BLDG
128 S TRYON ST NC1-006-08-03
CHARLOTTE NC 28255
NATIONAL FINANCIAL FOR THE Daily; 53,278,454.680; B 47.13 3.04
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
200 LIBERTY ST
1 WORLD FINANCIAL CTR
ATTN MUTUAL FUNDS, 5TH FLR
NEW YORK NY 10281
Short-Intermediate BANK OF AMERICA NA Investor A; 2,008,963.034; R 18.89 1.40
Government Fund ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
</TABLE>
197
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
NFSC FEBO # W14-610208 BURGESS PIGMENT Investor A; 953,752.432; B 8.99 0.66
CO
PO BOX 349 DECK BLVD
SANDERSVILLE GA 31082
JAMES STREET PROPERTY INVESTORS Investor A; 701,113.240; R 6.61 0.49
600 ATLANTIC AVE, SUITE 2000
BOSTON MA 02210
NFSC FEBO # W80-766356 PALACIOS-DELLY Investor C; 49,355.800; B 18.49 0.03
INC
DBA WEST MARINE DIESEL
MANUEL PALACIOS
1835 NEWTON AV
SAN DIEGO CA 92113
CIBC WORLD MARKETS CORP. FBO 033- Investor C; 38,071.066; B 14.26 0.02
30208-16
P.O. BOX 3484
CHURCH STREET STATION
NEW YORK, NY 10008-3484
CIBC WORLD MARKETS CORP. FBO 033- Investor C; 38,071.066; B 14.26 0.02
30213-19
P.O. BOX 3484
CHURCH STREET STATION
NEW YORK, NY 10008-3484
CIBC WORLD MARKETS CORP. FBO 033- Investor C; 38,071.066; B 14.26 0.02
30217-15
P.O. BOX 3484
CHURCH STREET STATION
NEW YORK, NY 10008-3484
BANK OF AMERICA NA Primary A; 131,630,711.905; R 99.50 91.41
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
RELIANCE TRUST CO 000088 TRUS Primary B; 51,345.830; R 99.99 0.03
PO BOX 4844
ATLANTA GA 30362
Government NFSC FEBO # W79-735922 PAUL E ADAMS Investor C; 10,460.251; B 35.82 0.04
Securities Fund 2261 MEDINA AVE
SIMI VALLEY CA 93063
NFSC FEBO # W78-027251 Investor C; 4,289.573; B 14.69 0.01
DAVID HAHN
2060 W 171ST ST
TORRANCE CA 90504
NFSC FEBO # W80-005711 SOCIEDAD NACIONAL Investor C; 3,255.903; B 11.15 0.01
MEXICANA
IGNACIO ZARAGOZA-SUPREMA
ATT IGNACIO C ORNELAS
1024 HARLAN CIR
SAN DIEGO CA 92114
NFSC FEBO # W75-019801 Investor C; 2,213.868; B 7.58 0.00
MEILING A WONG-BOND CUST
KATHLEEN LEW UTMA CA
454 CHESAPEAKE AVE
FOSTER CITY CA 94404
</TABLE>
198
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
MERRILL LYNCH, PIERCE, FENNER Investor C; 1,577.398; B 5.40 0.00
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
BANK OF AMERICA NA Primary A; 15,837,495.196; R 99.70 65.41
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Short-Term JAMES B CLEMENT Invesor C; 12,724.576; R 18.05 0.02
Income Fund P O BOX 5C
LAFAYETTE LA 70505-6003
ERNA M WEIDNER Investor C; 8,495.061; R 12.05 0.00
108 LARIAT
SAN ANTONIO TX 78232-1004
NFSC FEBO # W80-771309 WAYNE KRAEMER Investor C; 8,377.873; B 11.89 0.00
TTEE
OF THE KRAEME LIV TR
U/A 3/27/99
8777 CORAL SPRINGS CT #10-B
HUNTINGTON BEACH CA 92646
BNY CUST IRA FBO DON E BASTIAN Investor C; 6,960.327; B 9.87 0.00
1920 BARRON CT
CHARLOTTESVILLE VA 22911-7584
BNY CUST IRA FBO KATHRYN T BASTIAN Investor C; 4,419.250; B 6.27 0.00
1920 BARRON CT
CHARLOTTESVILLE VA 22911-7584
BANK OF AMERICA NA Primary A; 39,289,212.291; R 95.66 85.13
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA 000087 TXTRUST Investor A; 170,177.943; R 5.53 0.70
5000104686 170,177.943 1,599,672.66
5.5304
ATTN TONY FARRER
1401 ELM STREET 11TH FLOOR
DALLAS TX 75202-2911
JAMES B FORD AND Investor C; 18,416.602; R 13.74 0.00
JOANNE W FORD JTTEN
3441 LEBANON PIKE, STE 113
HERMITAGE TN 37076-2000
NFSC FEBO # W17-401 Investor C; 16,397.254; B 12.24 0.00
NFSC/FMTC IRA ROLLOVER
FBO LINDA G WALKER
7 SALLY ST
SPARTANBURG SC 29301
NFSC FEBO # W16- Investor C; 11,890.514; B 8.88 0.00
EDNA H DUNKLE
NFSC/FMTC IRA
GEORGE H DUNKLE DOD 4-30-00
207 N BEVERLY DR
</TABLE>
199
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
LOCUST NC 28097
BANC OF AMERICA INVESTMENT SERVICES Investor C; 9,711.357; B 7.24 0.00
0424 FBO 300181211
185 BERRY ST.
3RD FLOOR #12640
SAN FRANCISCO
STUART K COLONNA TTEE BAYSHORE Investor C; 9,646.591; R 7.20 0.00
CONCRETE
PRODUCTS CORP
RETIREMENT SAVINGS PLAN
1 BAYSHORE RD P O BOX 230
CAPE CHARLES VA 23310
NFSC FEBO # W14-629260 0226 W14 Investor C; 7,705; B 5.75 0.00
5002238441 7,705.097 72,350.86 5.7516
W O JAMES
JULIANNE G JAMES
425 SHERWOOD RD
FAYETTEVILLE GA 30215
BANK OF AMERICA NA Primary A; 12,315,264.067; R 64.72 51.00
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NATIONS LIFEGOAL PORTFOLIOS INC Primary A; 6,691,941.611; R 35.16 27.71
LIFEGOAL BALANCED GROWTH PORTFOLIO
ATTN BRIAN SMITH NC1-002-33-31
101 SOUTH TRYON ST
CHARLOTTE NC 28255
Bond Fund MERCANTILE SAFE DEP & TRUST CO Investor A; 236,652.359; B 9.60 0.00
TTEE
CASE COMMUNICATIONS DEFINED
BENEFIT
PLAN A/C# 3400306
U/A DTD 05/28/1984
766 OLD HAMMONDS FERRY RD
LINTHICUM MD 21090
SUMMERVILLE PEDIATRICS PA Investor C; 21,646.466; R 23.20 0.00
PROFIT SHARING PLAN
312 MIDLAND PARKWAY
SUMMERVILLE SC 29485-8114
BNY CUST IRA FBO JAMES A BLANCHARD Investor C; 10,139.140; R 10.87 0.00
9 LAS BRISAS
AUSTIN TX 78746
CARVER DEVELOPMENT BOARD Investor C; 8,572.341; R 9.19 0.00
ENDOWMENT FUND
226 N HACKBERRY ST
SAN ANTONIO TX 78202
MERRILL LYNCH, PIERCE, FENNER & Investor C; 7,205.597; B 7.72 0.00
SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
</TABLE>
200
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
NFSC FEBO # W55-008044 O H FERGASON Investor C; 5,474.239; B 5.87 0.00
O H FERGASON
1452 WILLIAMS DR
OKLAHOMA CITY OK 73119
ERNA M WEIDNER 000016 000000008 Investor C; 4,992.578; R 5.35 0.00
5001737229 4,992.578 46,880.31 5.3520
108 LARIAT
SAN ANTONIO TX 78232-1004
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 93.77 92.26
1401 ELM STREET, 11TH FLOOR 234,049,859.533; R
DALLAS TX 75202-2911
U.S. Government BEAR STEARNS SECURITIES CORP. Investor A; 92,289.321; B 28.58 0.98
Bond Fund FBO 220-94812-21
1 METROTECH CENTER NORTH
BROOKLYN NY 11201-3859
ISTCO 000088 TRUST 5001759785 49,418.791 Investor A; 49,418.791; R 15.30 0.56
472,937.83 15.3040
A PARTNERSHIP
PO BOX 523
BELLEVILLE IL 62222
VIRGINIA UNITED METHODIST HOMES Investor A; 22,616.320; R 7.00 0.25
INC 012001
7113 THREE CHOPT RD, STE 300
RICHMOND VA 232
GABLE & GOTWALS INC PROFIT SHARING Investor A; 22,141.305; R 6.86 0.25
PLAN SEGREGATED FBO ADWAN
BANK OF OKLAHOMA NA TTEE
PO BOX 2180
TULSA OK 74101
NFSC FEBO # W53-678562 Investor C; 18,875.36; B 21.38 0.21
RUTH LEE PAAR
P O BOX 102
WARSAW IL 62379
CARLA J WORLEY Investor C; 17,232.034; R 19.52 0.19
CNSV WILLIAM CODY WORLEY
HC 62 BOX 116
SALEM MO 65560-8705
NFSC FEBO # W53-710237 Investor C; 10,792.801; B 12.22 0.12
NFSC/FMTC IRA
FBO MILDRED DELUCA
5512 COLUMBIA AV
SAINT LOUIS MO 63139
NFSC FEBO # W52-004448 RODGER N Investor C; 9,402.532; B 10.65 0.10
LINDGREN TTEE
RODGER N LINDGREN REV TR
U/A 10/8/98
1203 GENEVA
KEARNEY MO 64060
WILBUR M FINGER Investor C; 6,237.661; R 7.07 0.00
AND MARGA E FINGER
JT WROS
5200 S BROADWAY, APT 408 M
</TABLE>
201
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
SAINT LOUIS MO 63111-2019
DONALDSON LUFKIN JENRETTE CUST Investor C; 6,202.721; B 7.02 0.00
DLJP DFLT A MERYL GRASSE
4CM737920 ROLLOVER/SEP
ONE PERSHING PLAZA
JERSEY CITY NJ 07399
BANK OF AMERICA NA Primary A; 6,610,965.010; 100.00 74.72
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
High Yield Bond MERRILL LYNCH, PIERCE, FENNER Investor A; 16,631.452; B 20.16 0.90
Fund & SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
NFSC FEBO # W82-025089 NANCY E JONES Investor A; 9,727.283; B 11.79 0.53
TTEE
THE BERYL LEON JONES BYPASS TR
U/A 10/24/88
11818 N 96TH PL
SCOTTSDALE AZ 85260
NFSC FEBO # W80-044946 FREDA KIRK Investor A; 7,081.293; B 8.58 0.38
WINTER
367 RIVIERA DRIVE
COSTA MESA CA 92627
NFSC FEBO # W80- DOROTHY STILLEY Investor A; 6,077.176; B 7.37 0.31
TTEE OF THE ROSANA DEESE REV TR
17077 SAN MATEO #1209
FOUNTAIN VALLEY CA 92708
NFSC FEBO # W82-031119 MARY R MILLER Investor A; 4,875.575; B 5.91 0.25
TTEE
MARY R MILLER REVOCABLE TRUST
U/A 3/14/00
2727 E UNIVERSITY #26
TEMPE AZ 85281
NFSC FEBO # W80-768456 GLADYS Investor A; 4,766.444; B 5.77 0.24
STENSRUD O'HARA TTEE
O'HARA FAMILY TRUST- B
U/W 11/2/89
710 WEST 13TH AVE #E-2
ESCONDIDO CA 92025
BANC OF AMERICA INVESTMENT Investor C; 8,904.811; R 48.90 0.48
SERVICES FBO 560088401
PO BOX 3701
INVESTMENT OPERATIONS WA1-501-31-10
SEATTLE WA 981243701
NFSC FEBO # W78-024767 JOANNE C Investor C; 4,059.757; B 22.30 0.21
SONGY TTEE
JOANNE C SONGY REVOCABLE TRUST
U/A 4/21/00
685 ATHY CT
</TABLE>
202
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
GALT CA 95632
NFSC FEBO # W17-033634 NFSC/FMTC IRA Investor C; 2,059.347; B 11.31 0.11
ROLLOVER
FBO TERRY STROUD
126 LOOP RD
SPARTANBURG SC 29306
NFSC FEBO # W78-023973 FLOYD R HENRY Investor C; 2,022.245; B 11.10 0.10
DOROTHY J HENRY
223 W 121ST ST
LOS ANGELES CA 90061
NFSC FEBO # W17- PATRICIA F HOOVER Investor C; 1,164.502; B 6.39 0.00
ROBERT J HOOVER JR
106 BLUEBIRD LANE
SPARTANBURG SC 29303
STEPHENS GROUP INC Primary A; 620,675.191; R 56.70 33.69
ATTN JOLENE JOHNSON
111 CENTER ST
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 463,639.633; R 42.35 25.17
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Intermediate Bond BANK OF AMERICA NA Investor A; 3,675,744.021; R 48.44 1.03
Fund ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
SEAFIRST BANK 08000 000000000 Investor A; 2,780,738.913; B 36.65 1.03
0004245833 2,780,738.913 25,554,990.61
36.6467
FBO RETIREMENT SVCS
PO BOX 84248
SEATTLE WA 98124-5548
DEAN WITTER FOR THE BENEFIT OF 0015 Investor B; 12,192.443; B 33.87 0.00
121 5004229976 12,192.443 111,804.70
33.8743
SHIRLEY M AFFOLTER TTEE FOR THE
PO BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
MERRILL LYNCH, PIERCE, FENNER Investor B; 10,330.460; B 28.70 0.00
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST 3RD FLOOR
JACKSONVILLE FL 32246
NFSC FEBO # W79-773336 NFSC/FMTC IRA Investor B; 4,144.988; B 11.52 0.00
ROLLOVER
FBO JUDITH C STILLWELL
1045 FREMONT ST
COLUSA CA 95932
NFSC FEBO # W75-010855 NFSC/FMTC IRA Investor B; 3,030.779; B 8.42 0.00
ROLLOVER
FBO W GARY OGBURN
348 CHURCH ST #102
</TABLE>
203
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
SAN FRANCISCO CA 94114
BISYS BD SERVICES, INC PO BOX 4054 Investor C; 2.496; R 47.75 0.00
PO BOX 4054
CONCORD CA 94524
BANK OF AMERICA NA Primary A; 2,499,730.598; R 99.83 85.19
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Municipal Income PRIM & ASSOCIATES PORT HSL Investor A; 225,089.561; R 6.60 0.41
Fund PO BOX 12219
ZEPHYR COVE NV 89448
EMMET DAVID GELHOT Investor C; 11,026.661; R 9.54 0.00
5630 OLEATHA AVENUE
SAINT LOUIS MO 63139-1504
NFSC FEBO # W52-019305 GEORGE W Investor C; 8,143.418; B 7.05 0.00
BUELL TTEE
GEORGE W BUELL REVOCABLE TRUST
U/A 12/21/98
7401 NE COOKINGHAM DR #A
KANSAS CITY MO 64157
NFSC FEBO # W52-674591 MAYOLA Investor C; 6,931.020; B 6.00 0.00
SAPPINGTON
DEBORAH DUREN
KENNETH SAPPINGTON
8 LENOIR CT
COLUMBIA MO 65201
BANK OF AMERICA NA Primary A; 50,006,355.698; R 99.56 91.76
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Maryland NFSC FEBO # W13-061581 Investor A; 329,475.793; B 20.96 1.75
Intermediate ROBERT GLADSTONE
Municipal Bond LESLIE GLADSTONE
Fund 2468 BELMONT RD NW
WASHINGTON DC 20008
NFSC FEBO # W13-640379 Investor A; 119,747.276; B 7.62 0.63
CAROL C HOUSE
PETER W HOUSE
4210 LEEWARD PL
BETHESDA MD 20816
NFSC FEBO # W38-007404 VINCENT L Investor A; 91,221.326; B 5.80 0.49
SALVATORI
CAROL H SALVATORI
2652 GREENBRIAR RD
ANNAPOLIS MD 21401
NFSC FEBO # W13-633313 ALBERT J Investor C; 5,671.745; B 18.62 0.00
ROBERTAZZI
SUSAN E FRANKS
11564 W HILL DR
ROCKVILLE MD 20852
NFSC FEBO # W13-661058 GIRARD F STEGNER Investor C; 4,120.620; B 13.58 0.00
</TABLE>
204
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
BETTY C STEGNER
29 CONSETT PL
FREDERICK MD 21703
NFSC FEBO # W13-660124 JESSICA UDALL Investor C; 3,316.201; B 10.89 0.00
GIL
MILAN D SMITH JR
5610 WISCONSIN AV
CHEVY CHASE MD 20815
NFSC FEBO # W13-699381 KWOK LUEN LEE Investor C; 2,667.287; B 8.76 0.00
PATSY S LEE
2705 HARDY AV
WHEATON MD 20902
NFSC FEBO # W13-633976 ANDREW C SICKLER Investor C; 2,147.176; B 7.05 0.00
SHARON L SICKLER
5320 IJAMSVILLE RD
IJAMSVILLE MD 21754
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 16,197,701.502; R 100.00 86.37
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Virginia GRIFFIN CHILES 1221 CLONCURRY ROAD Investor C; 9,712.522; R 14.11 0.00
Intermediate NORFOLK VA 23505-0000
Municipal Bond
Fund
DOROTHY LEE WALSHE 5801 MILL SPRING RD Investor C; 9,708.237; R 14.11 0.00
MIDLOTHIAN VA 23112
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 22,649,191.585; R 100.00 72.02
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Georgia WACHOVIA SECURITIES, INC. Investor A; 154,079.912; B 13.45 1.15
Intermediate FBO 402-08416-17
Municipal Bond P.O. BOX 1220
Fund CHARLOTTE, NC 28201-1220
CHARLOTTE, NC 28201-1220
NFSC FEBO # W14-004162 Investor A; 92,958.294; B 8.11 0.69
ALICE HINTON RAY
P O BOX 415
DACULA GA 30019
THE CRUMPLER INVESTMENT LP Investor A; 76,238.502; R 6.66 0.56
CRUMPLER INVESTMENT MGT CO LLC/GP
50 OLD VERMONT PL
ATLANTA GA 30328-0000
WACHOVIA BANK NA CO-TTEE Investor A; 62,368.371; R 5.44 0.46
OF LSW-S
P O BOX 3073
301 N MAIN ST MC NC-31057
WINSTON-SALEM NC 27150
TRENT & CO Investor A; 60,836.502; R 5.31 0.44
</TABLE>
205
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
C/O OLD KENT BANK
ATTN TRUST SECURITIES /MUTUAL
FUND SPECIALIST
4420 44TH ST, STE A
GRAND RAPIDS MI 49512-4011
1 NFSC FEBO # W14-009636 Investor B; 254,882.288; B 39.64 1.90
DERST INVESTMENTS LP
A PARTNERSHIP
258 VARN DRIVE
SAVANNAH GA 31405
NFSC FEBO # W14-652571 Investor C; 53,692.721; B 76.75 0.40
LETTY C CAGLE
DOUGLAS CAGLE
APT 318 8592 ROSWELL RD
ATLANTA GA 30350
LILLIAN BROWN TTEE SURVIVOR TRUST Investor C; 3,804.439, R 5.43 0.00
UNDER BROWN
FAMILY TRUST UTD 1-20-89
27402 PLANTATION DRIVE NE 402
ATLANTA GA 30324
BANK OF AMERICA NA Primary A; 11,555,846.124; R 99.99 86.07
ATTN TONY FARRER
1401 ELM STREET, 11TH FLO
South Carolina NFSC FEBO # W15-620629 Investor A; 193,810.412; B 13.15 0.86
Intermediate J C BERNARD
Municipal Bond MERNA D BERNARD
Fund 110 DOLPHIN POINT DR
BEAUFORT SC 29902
JAMES MARKHAM Investor A; 96,557.940; R 6.55 0.43
99 BIRDSONG WAY
HILTON HEAD ISLAND SC 29926
1 NFSC FEBO # W15-645788 Investor B; 79,922.780; B 11.64 0.33
GUSTAVE J CRISPYN
MILDRED M CRISPYN
2382 CAT TAIL POND RD
JOHNS ISLAND SC 2945
NFSC FEBO # W15-645583 Investor C; 116,632.525; B 43.49 0.51
BERCHTOLD CORP
1950 HANAHAN RD
CHARLESTON SC 29406
NFSC FEBO # W15-624438 TRACY S HARVEY Investor C; 18,408.261; B 6.86 0.00
SUSAN C HARVEY
5033 STONE PLANTATION DR
MEGGELL SC 29449
NFSC FEBO # W15-636169 PETER B & Investor C; 16,115.788; B 6.01 0.00
FRIEDA B GRIFFIN TTEE
THE HOBART W GRIFFIN & FRIEDA B
GRIFFIN TR, U/A 1/31/92
116 DUNBARTON CIR
AIKEN SC 298
NFSC FEBO # W15-013765 0226 W15 Investor C; 14,945.439; B 5.57 0.00
</TABLE>
206
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
5003661013 14,945.439 153,938.02 5.5728
CAROLINE M LUTZ
26 FIDDLERS TRACE
FRIPP ISLAND SC 29920
BANK OF AMERICA NA Primary A; 20,103,845.411; R 100.00 89.22
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Florida J MICHAEL NIXON Investor A; 398,681.180; R 48.25 1.91
Intermediate 621 SW BAYPOINT CIRCLE
Municipal Bond PALM CITY FL 34990-1753
Fund
NFSC FEBO # W65-028193 Investor A; 60,151.566; B 7.28 0.29
THURMAN D KITCHIN
P O BOX 1479
WINTER PARK FL 3279
DORIS R BOMSTEIN AND SANFORD Investor C; 10,053.877; R 83.78 0.00
SANFORD BOMSTEIN TTEES
DORIS R BOMSTEIN TRUST
U/A/D 08/20/91
3000 S OCEAN BLVD, APT 1201
BOCA RATON FL 33432
NFSC FEBO # W62-059013 STANTON T COOK Investor C; 1,257.012; B 10.47 0.00
1918 SUNNY PALM DR
ORMOND BEACH FL 32174
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 19,403,195.825; R 100.00 93.18
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
North Carolina NFSC FEBO # X68-061336 JULIA E CLARK Investor A; 99,555.486; B 9.85 0.51
Intermediate 4600 TROY'S MTN LN
Municipal Bond DURHAM NC 27705
Fund
ARROW & CO Investor A; 82,985.056; R 8.21 0.42
PO BOX 30010
DURHAM NC 27702-3010
NFSC FEBO # W16-714542 FRANK DOWD JR Investor A; 71,113.956; B 7.04 0.36
P O BOX 35430
CHARLOTTE NC 28235
NFSC FEBO # W26-656267 EILEEN M FRIARS Investor A; 62,374.212; B 6.17 0.32
3516 FOXCROFT ROAD
CHARLOTTE NC 28211
NFSC FEBO # PSA-042072 0226 PSA Investor A; 61,932.117; B 6.13 0.32
5001926517 61,932.117 634,184.88 6.1303
RON F ROBINE
CATHY G ROBINE
108 SPARROW HAWK LN
CHADDS FORD PA 19317
NFSC FEBO # W27-734004 BARBARA B COYNER Investor C; 2,424.479; B 31.71 0.00
513 LAKE BOONE TRAIL
</TABLE>
207
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
RALEIGH NC 27608
NFSC FEBO # W27-682217 J ROBERT Investor C; 1,751.106; B 22.81 0.00
STOUT REVOCAB TR
J ROBERT STOUT
U/A 02/19/97
PO BOX 35343
GREENSBORO NC 27425
NFSC FEBO # W27-747360 ANNA B STEELE Investor C; 1,131.724; B 14.80 0.00
2041 GEORGIA AVENUE
WINSTON SALEM NC 27104
NFSC FEBO # W27-740810 THOMAS H BLOUNT Investor C; 641.285; B 8.39 0.00
DORIS J BLOUNT
207 W 11TH ST
WASHINGTON NC 27889
BANK OF AMERICA NA Primary A; 17,246,421.806; R 100.00 88.49
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Texas FIRST NATIONAL BANK OF ABILENE TTEE Investor A; 44,705.577; B 13.26 0.15
Intermediate MERLE HART DUFFY TUW
Municipal Bond PO BOX 701
Fund ABILENE TX 79604
SECURED TRUST BANK Investor A; 38,304.877; R 11.36 0.13
1909 S BROADWAY
TYLER TX 757
MOTCO Investor A; 36,381.498; R 10.79 0.12
P O BOX 17001-TRUST
SAN ANTONIO TX 78217
MADELINE O'DONNELL Investor A; 29,091.720; R 8.63 0.00
2395 NICHOLS CANYON RD
HOLLYWOOD CA 90046
NFSC FEBO # W18-708275 Investor A; 26,259.716; B 7.79 0.00
SHARRA LANKFORD
238 VAN ROWE
DUNCANVILLE TX 75116
MERRILL LYNCH, PIERCE, FENNER Investor A; 19,780.153; B 5.87 0.00
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
NFSC FEBO # TX4-135739 Investor A; 18,888.648; B 5.60 0.00
ROBERT D DAVIS
SHIRLEY C DAVIS
630 SHOREACRE BLVD
LA PORTE TX 77571
NFSC FEBO # W40-678880 JAMES ROBERT Investor B; 32,442.380; B 16.00 0.10
MALLORY
FAITH K MALLORY
2400 WINTON TERR E
</TABLE>
208
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
FORT WORTH TX 76109
NFSC FEBO # W18- MONTINE T WISDOM Investor B; 22,726.776; B 11.21 0.00
6335 W NORTHWEST HWY #1318
DALLAS TX 75225
NFSC FEBO # W40-682470 Investor B; 18,713.899; B 9.23 0.00
A G MARTIN
NELLIE L MARTIN
2011 32ND ST
LUBBOCK TX 79411
NFSC FEBO # W41-600997 Investor B; 18,274.353; B 9.01 0.00
OLIVER ROOFING SYSTEMS
PO BOX 180191
AUSTIN TX 78718
AUSTIN TX 78718
STEPHENS INC Investor C; 263.236; R 100.00 0.00
ATTN: CINDY COLE
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 29,437,725.174; R 98.04 96.31
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Tennessee NFSC FEBO # W25-683256 Investor A; 122,316.601; B 15.43 2.53
Intermediate MARSHALL T POLK III
Municipal Bond PO BOX 90148
Fund NASHVILLE TN 37209
NFSC FEBO # W25-680427 Investor A; 116,967.892; B 14.75 2.42
BOB G LONG
PO BOX 266
HERMITAGE TN 37076
NFSC FEBO # U31-035432 Investor A; 63,403.788; B 8.00 1.31
FABCO
ATTN: A/C # 40-01-110-4855700
JOHNSON H CLAY EVANS SR TUA
P.O. BOX 105870
ATLANTA GA 30
RALPH S GRAHAM TTEE Investor A; 59,430.053; R 7.50 1.23
RALPH S GRAHAM REV LIV TRUST
U/A DTD 08/14/1990
PO BOX 235
BIG SANDY TN 38221
NFSC FEBO # W25-684716 JAMES R Investor A; 58,646.477; B 7.40 1.22
KELLAM III
3605 SYCAMORE LANE
NASHVILLE TN 37215
NFSC FEBO # W25-680419 JOSEPH L Investor A; 47,374.611; B 6.00 0.98
DILORENZO
310 WATERCRESS DRIVE
FRANKLIN TN 37064
SAM H HAY SR, MD Investor A; 42,090.922; R 5.31 0.87
PO BOX 5064
MURFREESBORO TN 37133
</TABLE>
209
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
NFSC FEBO # W25-008028 Investor B; 17,056.616; B 10.55 0.35
DAVID A LOCKMILLER
CARLOTTA E LOCKMILLER
4343 LEBANON RD APT#1711
HERMITAGE TN 37
NFSC FEBO # W25-695556 Investior B; 14,239.949; B 8.80 0.29
CHARLES R COOKSEY
JULIE E COOKSEY
4767 CARTHAGE HWY
LEBANON TN 3708
NFSC FEBO # W25-684350 Investor B; 10,822.778; B 6.69 0.20
MIRIAM F HILDEBRAND
884 EDMONDSON PIKE
BRENTWOOD TN 37027
BANK OF AMERICA, NA FBO MARY JANE Investor B; 9,951.699; B 6.16 0.18
WERTHAN
ATTN: JOAN WRAY
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
STEPHENS INC ATTN: CINDY COLE Investor C; 266.313; R 99.60 0.00
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 3,870,478.901; R 100.00 80.21
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Texas WARREN K MONTOURI TTEE Investor A; 385,569.792; R 20.37 0.44
Intermediate WARREN K MONTOURI TRUST
Municipal Bond U/A DTD 10/08/97
Fund 2440 VIRGINIA AVE NW
WASHINGTON DC 20037-2601
HOMETOWN BANK & COMPANY Investor A; 311,904.773; R 16.48 0.36
PO BOX 2887
WILSON NC 27894-2887
NFSC FEBO # W52-000019 Investor A; 131,504.049; B 6.95 0.15
FRANK B COMFORT
4912 CEDAR DRIVE
WEST DES MOINES IA 50266
NFSC FEBO # W18-738263 Investor A; 116,470.522; B 6.15 0.13
EDELWEISS CORP
ATTN: SUSAN CROWDER
1445 ROSS @ FIELD, STE 1500
DALLAS TX 75202
Virginia RODNEY M CARLSON AND Investor A; 8,010.000; R 16.25 0.25
Municipal Bond JOYCE L CARLSON JTTEN
Fund 3608 SOUTH CREEK CT
CHESAPEAKE VA 23325
REBECCA C BELL 1092 OAKLAWN DR Investor A; 6,844.881; R 13.90 0.21
CULPEPER VA 22701
NFSC FEBO # W26-636398 CREOLA M SHEARIN Investor A; 6,165.695; B 12.52 0.19
</TABLE>
210
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
2205 PARKSIDE AVE
RICHMOND VA 23228
JESSIE E SPELLS 1518 DOGWOOD RD Investor A; 5,983.121; R 12.15 0.18
ST LEONARD MD 20685-2710
NFSC FEBO # W68-011398 GERALD H MOULTON Investor A; 5,075.445; B 10.30 0.15
JR
VIRGINIA M MOULTON
3240 VILLAMONT ROAD
BLUE RIDGE VA 24064
NEW YORK NY 10281
NFSC FEBO # W13-652342 Investor A; 4,477.459; B 9.09 0.13
JEFFERY W HALE
DIANE A HALE
8618 WOODBINE LANE
ANNANDALE VA 22003
NFSC FEBO # W26-643866 ESMOND L Investor A; 3,210.712; 6.52 0.00
DOMINICK JR
4014 TANGLEWOOD TRAIL
CHESAPEAKE
STEPHENS INC ATTN: CINDY COLE Investor C; 308.821; R 100.00 0.00
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA 000087 TXTRUST Primary A; 1,771,119.154; R 100.00 54.68
5000104686 1,771,119.154 16,754,787.20
100.0000
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Maryland NFSC FEBO # W13-640379 Investor A; 108,661.217; B 53.58 2.52
Municipal Bond CAROL C HOUSE
Fund PETER W HOUSE
4210 LEEWARD PL
BETHESDA MD 20816
NFSC FEBO # W13-634760 RAYMOND A Investor A; 23,517.554; B 11.59 0.55
TURETSKY
BESS H TURETSKY
11220 WOODSON AV
KENSINGTON MD 20895
NFSC FEBO # W38-058246 Investor A; 13,742.186; B 6.78 0.31
DONA L LECHLITER
STEPHEN C LECHLITER
4102 MADISON STREET
HYATTSVILLE MD 20781
NFSC FEBO # W13-770442 RICHARD E Investor A; 11,973.769; B 5.90 0.24
IRELAND
MARY E IRELAND
1423 GROUSE CT
FREDERICK MD 21703
NFSC FEBO # W38-028541 Investor C; 21,307.129; B 93.98 0.49
ELIZABETH GREGORY
PO BOX 2327
OCEAN CITY MD 21843
</TABLE>
211
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
BANK OF AMERICA NA Primary A; 1,875,833.010; R 99.98 43.59
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
North Carolina NFSC FEBO # W69-032018 Investor A; 16,548.876; B 9.92 0.42
Municipal Bond DONALD L GROVES
19 GLENN CABLE ROAD
ASHEVILLE NC 28805
NFSC FEBO # W27-036080 RENEA A Investor A; 13,717.297; B 8.22 0.35
REYNTJENS-DECLERQ REVOCA
RENEA A REYNTJENS-DECLERQ
U/A 11/19/99
3316 BERMUDA VILLAGE DRIVE
ADVANCE NC 27006
NFSC FEBO # W27-036102 JACQUES H Investor A; 13,717.297; B 8.22 0.35
REYNTJENS REVOCABLE TR
JACQUES H REYNTJENS
U/A 11/19/99
3316 BERMUDA VILLAGE DRIVE
ADVANCE NC 27006
NFSC FEBO # 679-107875 Investor A; 13,636.328; B 8.17 0.34
ROXY M BARBEE
12933 SAM BLACK RD
MIDLAND NC 28107
MARY L CAGLE Investor A; 12,289.437; R 7.37 0.28
3621 PROVIDENCE RD
CHARLOTTE NC 28211
NFSC FEBO # W16-001856 WESLEY F Investor A; 10,672.694; B 6.40 0.23
POROZYNSKI
JOAN C POROZYNSKI
123 PLUM TREE LN
STATESVILLE NC 28677
NFSC FEBO # W16-699632 JOHN R TAYLOR Investor C; 2,712.345; B 47.56 0.00
EDNA H TAYLOR
802 HIDDEN CREEK CIR
SALISBURY NC 28147
NFSC FEBO # NC4-120367 MICHAEL T MOORE Investor C; 2,690.713; B 47.18 0.00
4034 CHURCHHILL RD
CHARLOTTE NC 28211
STEPHENS INC ATTN: CINDY COLE Investor C; 299.352; R 5.25 50.57
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 1,969,882.479; R 99.98 1.44
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
South Carolina NFSC FEBO # W17-039020 Investor A; 52,722.838; B 56.48 0.24
Municipal Bond DONNA R CART TTEE
Fund DONNA ROBINSON CART
U/A 5/23/00
1140 PARTRIDGE RD
SPARTANBURG SC 29302
</TABLE>
212
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
NFSC FEBO # 679-136298 LOUISE B ROSS Investor A; 8,906.219; B 9.54 0.22
LOUISE B ROSS TTEE
U/A 10/22/1997
PO BOX 908
BAMBERG SC 29003
WACHOVIA BANK NA INVESTMENT MGR CHARLES Investor A; 8,819.040; R 9.44 1.38
D ERB TTEE FOR CHARLES D
ERB TRUST U/A DTD 10/4/88
PO BOX 3073
M/C NC-31057
WINSTON-SALEM NC 27150
1 NFSC FEBO # W38-006564 HENRY A Investor B; 50,544.038; B 5.74 1.01
STROHMINGER JR
1426 N WACCAMAW DR
GARDEN CITY SC 29576
NFSC FEBO # W15-013684 OLGA WEINSTEIN Investor C; 3,983.884; B 93.20 0.11
TTEE
OLGA WEINSTEIN REVOCABLE TRUST
U/A 4/28/99
P O BOX 31455
CHARLESTON SC 29407
STEPHENS INC Investor C; 290.506; R 6.79 0.00
ATTN: CINDY COLE
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 2,670,766.953; R 100.00 73.19
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Florida Municipal NATIONAL FINANCIAL SVS CORP Investor A; 3,153,563.266; B 62.27 21.19
Bond Fund FOR THE EXCLUSIVE BENEFIT OF
OUR CUSTOMERS
CHURCH STREET STATION
PO BOX 3908
NEW YORK NY 10008-3908
NFSC FEBO # W64-048550 THOMAS W BROWN Investor C; 2,104.648; B 87.48 0.00
RT 20 BOX 2130
LAKE CITY FL 32055
STEPHENS INC ATTN: CINDY COLE Investor C; 301.152; R 12.52 0.00
111 CENTER STREET
LITTLE ROCK AR 72201
BANK OF AMERICA NA Primary A; 8,392,255.808; R 99.88 56.42
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Georgia Municipal NFSC FEBO # W14-004162 ALICE HINTON RAY Investor A; 99,501.476; B 50.60 3.29
Bond Fund P O BOX 415
DACULA GA 30019
NFSC FEBO # W14-749877 HUNTER R Investor A; 28,597.042; B 14.54 0.95
HUGHES III
</TABLE>
213
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
C/O ROGERS & HARDIN
229 PEACHTREE ST NW
2700 CAIN INTERATIONAL TOWER
ATLANTA GA 30303
NFSC FEBO # W14-725382 Investor A; 26,260.124; B 13.35 0.83
EDD PRICE
LYNN PRICE
AAA TANK TESTERS
PO BOX 789
BRAZELTON GA 30517
NFSC FEBO # W14-753149 ANN P BLYTHE Investor A; 18,984.544; B 9.66 0.63
1110 GRAYSTONE CROSSING
ALPHARETTA GA 30005
MERRILL LYNCH, PIERCE, FENNER & SMITH Investor C; 4,016.348; B 68.29 0.13
INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
AUREATHA W FLOWERS 4 MIDDLE PLANTATION Investor C; 1,565.490; R 14.97 0.00
RD NW
ATLANTA GA 30318
BANK OF AMERICA NA Primary A; 1,571,146.882; R 99.98 52.04
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Tennessee NFSC FEBO # W25-002658 Investor A; 103,704.633; B 62.50 9.30
Municipal Bond WILLIAM W PUGH JR
Fund 106 ORCHARD CIRCLE
OAK RIDGE TN 37830
NFSC FEBO # W25-681849 Investor A; 21,509.655; B 12.96 1.93
JOHN MCBEE
427 LYNWOOD BOULEVARD
NASHVILLE TN 37205
NFSC FEBO # W25-682101 Investor A; 12,670.989; B 7.63 1.13
ALLENE ELLIS
JOYCE ROSE
2544 BEARWALLOW RD
ASHLAND CITY TN 37015
NFSC FEBO # W25-684350 MIRIAM F Investor B; 71,004.928; B 17.93 6.37
HILDEBRAND
884 EDMONDSON PIKE
BRENTWOOD TN 37027
NFSC FEBO # W25-690961 Investor B; 20,325.000; B 5.13 1.82
ELIZABETH D CAMPBELL
3037 SMITH SPRINGS RD
ANTIOCH TN 37013
J CHASE COLE Investor C; 8,040.728; R 53.88 0.72
511 UNION ST, STE 2100
NASHVILLE TN 37219
NFSC FEBO # W25-617954 FRANK W Investor C; 4,185.174; B 28.04 0.37
</TABLE>
214
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
CONDURELIS
JANE E CONDURELIS
806 BRENTVIEW DR
NASHVILLE TN 37220
NFSC FEBO # W25-009660 DONALD J Investor C; 2,403.161; B 16.10 0.21
SOUTHARD SR
BARBARA C SOUTHARD
278 JOE BYRD LN
CLINTON TN 37716
BANK OF AMERICA NA Primary A; 537,760.603; R 99.94 48.28
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Texas Municipal MOTCO Investor A; 22,935.780; R 68.25 1.64
Bond Fund P O BOX 17001-TRUST
SAN ANTONIO TX 78217
EDWARD D JONES AND CO F/A/O ADOLPH F Investor A; 2,853.794; B 8.49 0.20
SCHMIDT &
ELVIRA H SCHMIDT
EDJ# 512-06113-1-3
P O BOX 2500
MARYLAND HEIGHTS MO 630438500
NFSC FEBO # W40-650790 SETH W LEHMBERG Investor A; 2,742.706; B 8.17 0.20
ROSE MARY LEHMBERG
2201 MEADOW LANE
TAYLOR TX 76574
SHIRLEY A WAGNER Investor A; 2,693.287; R 8.01 0.19
3002 SAN PAULA
DALLAS TX 75228-0000
NFSC FEBO # W40-609048 Investor B; 41,732.201; B 7.38 2.99
JANE M MCCARVER EX
E/O A G MCCARVER
901 W INDIANNA, STE A
MIDLAND TX 79701
NFSC FEBO # W41-617733 JAY L WILLMANN Investor C; 8,442.118; B 95.43 0.60
CATHERINE B WILLMANN
2918 KASSARINE PASS
AUSTIN TX 78704
BANK OF AMERICA NA Primary A; 787,850.887; R 99.96 56.43
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
California BANK OF AMERICA NA Investor A; 1,349,303.220; R 6.44 5.37
Municipal Bond ATTN TONY FARRER
Fund 1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
NFSC FEBO # W73-620181 HAZEL A NELSON Investor B; 42,389.694; B 6.96 0.17
TTEE
OF THE NELSON FAMILY TRUST
U/A 7/28/92
P O BOX 1457
WHITTIER CA 90609
</TABLE>
215
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
BANC OF AMERICA INVESTMENT SERVICES Investor B; 41,046.941; B 6.73 0.15
FBO 390139091
185 BERRY ST.
3RD FLOOR #12640
SAN FRANCISCO CA 94107
NFSC FEBO # W80-620467 JOHN ANANIAN Investor B; 40,872.320; B 6.71 0.15
ANNA ANANIAN
25296 HILLARY LN
LAGUNA HILLS CA 92653
BA INVESTMENT SERVICES INC Investor C; 35,514.401; B 54.96 0.14
FBO 330109681
3RD FLOOR 12640
185 BERRY ST
SAN FRANCISCO CA 94107-1729
MERRILL LYNCH, PIERCE, FENNER Investor C; 28,010.455; B 43.34 0.11
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
BANK OF AMERICA NA Primary A; 3,449,958.318; R 99.99 13.89
ATTN TONY FARRER
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
International BANK OF AMERICA NA Investor A; 343,540.131; R 8.93 0.44
Equity Fund ATTN TONY FARRER
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
MELLON BANK NA TTEE Investor A; 324,501.032; R 8.44 0.43
SMM TRUST 1999-J
U/A DTD 12/8/99
429 SM BLVD # 470
SANTA MONICA CA 90401
OASIS CAPITAL MANAGEMENT Investor A; 224,316.607; R 5.83 0.30
OPERATIONS
4111 E 37TH ST N
WICHITA KS 67220
H GRAYSON MITCHELL JR AND JOHN RAWLS Investor C; 9,755.132; R 12.50 0.00
TTEE FBO
GRAYSON MITCHELL INC
401K PLAN
P O BOX 128
EMPORIA VA 23847
C A PORTERFIELD & ROSALEE MOXLEY & Investor C; 8,157.906; R 10.45 0.00
FRANK MINTON TTEES FBO
STARMOUNT COMPANY EMPLOYEES
TAX DEFERRED SAVINGS PLAN
PO BOX 10349
GREENSBORO NC 27404-0349
</TABLE>
216
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
E LARRY FONTS TTEE FBO 002001 W18 Invvestor C; 7,012.641; R 8.98 0.00
CENTRAL DALLAS ASSOCIATION
PROFIT SHARING PLAN
1201 ELM STREET, SUITE 5310
DALLAS TX 75270
TATSUSHI T KUBO, MAX W DAHLGREN, & JOHN Investor C; 6,535.536; R 8.37 0.00
DAHLGREN TTEES FBO
EPIC PRODUCTS INTERNATIONAL
CORPORATION 401(K) PLAN
PO BOX 5808
ARLINGTON TX 76005-5808
BNY CUST IRA FBO CELESTINE A THELEN Investor C; 6,073.898; B 7.78 0.00
8501 MANASTASH RD
ELLENSBURG WA 98926
NFSC FEBO # W17-662682 NFSC/FMTC IRA Investor C; 4,886.548; B 6.26 0.00
ROLLOVER
FBO LINDA G WALKER
7 SALLY ST
SPARTANBURG SC 29301
DONALD R ATKINS AND DAVID R MORGAN Investor C; 3,939.295; R 5.04 0.00
TTEES
LYNDON STEEL 401K PROFIT SHARING PL
1947 UNION CROSS ROAD
WINSTON-SALEM NC 27107
BANK OF AMERICA NA Primary A; 52,463,619.972; R 78.10 71.83
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA TTEE Primary A; 12,002,007.498; R 17.87 16.43
NB 401K PLAN
U/A DTD 01/01/1983
P O BOX 2518/TX4-213-06-14
HOUSTON TX 77252-2518
Emerging Markets CHARLES SCHWAB & CO INC Investor A; 20,791.704; B 10.89 0.47
Fund SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
THE ANTIOCH FUND Investor A; 14,147.843; R 7.41 0.32
C/O CPTR, LLC
30 TOWER LANE
AVON CT 06001
DEAN WITTER REYNOLDS CUST FOR SUSAN C Investor C; 1,567.538; B 19.21 0.00
RAGLAND
PO BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
DEAN WITTER REYNOLDS CUST FOR GEORGE A Investor C; 1,565.245; B 19.18 0.00
RAGLAND
PO BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
MERRILL LYNCH, PIERCE, FENNER & SMITH Investor C; 1,103.669; B 13.52 0.00
INC FOR THE SOLE BENEFIT
</TABLE>
217
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
NFSC FEBO # W17-648345 NFSC/FMTC IRA Investor C; 600.743; B 7.36 0.00
FBO CARROLL L TERRELL
6502 WOODROW TERR
RICHMOND VA 23228
BANK OF AMERICA NA Primary A; 3,759,215.185; R 97.99 86.79
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
International MERRILL LYNCH, PIERCE, FENNER Investor A; 7,704,085.558; B 56.04 12.91
Value Fund & SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
CHARLES SCHWAB & CO INC Investor A; 1,521,758.365; B 11.07 2.55
SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
MERRILL LYNCH, PIERCE, FENNER Investor B; 318,561.089; B 9.46 0.53
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
MERRILL LYNCH, PIERCE, FENNER Investor C; 264,318.522; B 28.71 0.44
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
STATE STREET BANK & TRUST CO TTEE Investor C; 122,369.265; R 13.20 0.20
FBO COASTGEAR & COMPANY
ATTN: KEVIN SMITH
105 ROSEMONT AVE
WESTWOOD MA 02090
BANK OF AMERICA NA Primary A; 25,644,943.445; R 61.65 43.05
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
CHARLES SCHWAB & CO INC Primary A; 4,704,148.631; B 11.30 7.90
SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
</TABLE>
218
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
MAC & CO A/C CFZF5031242 Primary A; 2,335,266.459; R 5.61 3.92
MUTUAL FUND OPERATIONS
PO BOX 3198
PITTSBURGH PA 15230-3198
Value Fund STUART K COLONNA TTEE BAYSHORE CONCRETE Investor C; 54,358.279; R 7.65 0.00
PRODUCTS CORP
RETIREMENT SAVINGS PLAN
1 BAYSHORE RD
PO BOX 230
CAPE CHARLES VA 23310
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 77,441,112.728; R 88.44 83.28
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
BANK OF AMERICA NA TTEE NBK 401K PLAN Primary A; 6,608,095.009 7.54 7.10
U/A DTD 01/01/1983
P O BOX 2518/TX4-213-06-14
HOUSTON TX 77252-2518
Equity Income Fund BANK OF AMERICA NA ATTN TONY FARRER Primary A; 46,034,014.742; R 99.45 88.96
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
Capital Growth NFSC FEBO #W18-006289 Investor A; 242,099.725; B 5.50 0.39
Fund 1 WORLD FINANCIAL CNTR
NEW YORK NY 10281
NFSC FEBO #W16-719625 Investor C; 22,367.893; B 5.95 0.00
NFSC/FMTC IRA
FBO JAMES A HULLENDER
211 BLUEBIRD RD
LAKE LURE NC 28746
E LARRY FONTS TTEE FBO CENTRAL DALLAS Investor C; 22,311.011; R 5.94 0.00
ASSOCIATION
PROFIT SHARING PLAN
1201 ELM STREET, SUITE 5310
DALLAS TX 75270
BANK OF AMERICA NA Primary A; 54,470,844.881 97.37 94.90
ATTN TONY FARRER
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
Balanced Assets HENRY STERNLIEB AND ROSE STERNLIEB Investor A; 58,494.668 5.57 1.04
Fund JTWROS
6608 MAYNADA ST
CORAL GABLES FL 33146
GABLE & GOTWALLS INC PROFIT SHARING Investor A; 58,088.159; R 5.53 1.03
PLAN SEGREGATED
FBO ADWAN BANK OF OKLAHOMA NA TTEE
P O BOX 2180
TULSA OK 74101
</TABLE>
219
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
C A PORTERFIELD & ROSALEE MOXLEY & Investor C; 17,711.644; R 18.11 0.31
FRANK MITTON TTEES FBO STARMOUNT
COMPANY EMPLYEES TAX DEFERRED SAVINGS
PLAN
P O BOX 10349
GREENSBORO NC 27404-0349
STUART K COLONNA TTEE BAYSHORE CONCRETE Investor C; 17,404.529; R 17.80 0.29
PRODUCTS CORP RETIREMENT SAVINGS PLAN
P O BOX 10349
GREENSBORO NC 27404-0349
C A PORTERFIELD & ROSALEE MOXLEY & Investor C; 15,924.245; R 16.28 0.25
FRANK MITTON TTEES STARMOUNT
CORPORATION CAPITAL ACCUMULATION PLAN
P O BOX 10349
GREENSBORO NC 27404-0349
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 3,386,324.128; R 97.63 60.68
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
MidCap Growth DONALDSON LUFKIN JENRETTE SECURITIES Investor A; 136,857.598; R 11.21 0.82
Fund CORPORATION INC.
P O BOX 2052
JERSEY CITY NJ 07303-9998
J C BRADFORD & CO. CUST FBO Investor A; 81,229.659; R 6.66 0.49
APPEL EQUITY GROUP
330 COMMERCE ST
NASHVILLE TN 37201-1809
1 TATSUSHI T KUBO, MAX W DAHLGREN, Investor C; 13,177.511; R 8.20 0.00
& JOHN DAHLGREN TTEES FBO
EPIC PRODUCTS INTERNATIONAL
CORPORATION 401(K) PLAN
PO BOX 5808
ARLINGTON TX 76005-5808
2 C A PORTERFIELD & ROSALEE MOXLEY Investor C; 12,243.102; R 7.62 0.00
& FRANK MINTON TTEES FBO
STARMOUNT COMPANY EMPLOYEES
TAX DEFERRED SAVINGS PLAN
PO BOX 10349
GREENSBORO NC 27404-0349
3 GREG ZAKARIAN AND V M ESPOSITO TTEES Investor C; 9,315.169; R 5.79 0.00
FBO
ANTEX BIOLOGICS INC
EMPLOYEE 401(K) PLAN
300 PROFESSIONAL DRIVE
GAITHERSBURG MD 20879
4 H GRAYSON MITCHELL JR AND JOHN RAWLS Investor C; 9,914.206; R 5.72 0.00
TTEE FBO
GRAYSON MITCHELL INC 401K PLAN
P O BOX 128
EMPORIA VA 23847
</TABLE>
220
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
SUMMERVILLE PEDIATRICS PA PROFIT Investor C; 8,662.676; R 5.39 0.00
SHARING PLAN
312 MIDLAND PARKWAY
SUMMERVILLE SC 29485-8114
BANK OF AMERICA NA ATTN TONY FARRER Primary A; 12,901,958.947; R 98.89 80.23
1401 ELM STREET
11TH FLOOR
DALLAS TX 75202-2911
LargeCap Index 1 MIDTRUSCO Investor A; 61,670.268; R 5.53 0.00
Fund 10740 NALL STE 100
OVERLAND PARK KS 66211
NFSC FEBO # W18- Investor A; 58,480.981; R 5.24 0.00
LOYAL TRUST NO. 1
JOHN J MURPHY TTEE
U/A 04/24/58
1445 ROSS, SUITE 1500
DALLAS TX 75202
BANK OF AMERICA NA TTEE NB 401K PLAN Primary A; 62,719,881.470; R 64.74 59.47
U/A DTD 01/01/1983
P O BOX 2518/TX4-213-06-14
HOUSTON TX 77252-2518
BANK OF AMERICA NA Primary A; 33,886,055.817; R 34.98 9.15
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Managed Index CHARLES SCHWAB & CO INC Investor A; 162,516.725; R 6.59 0.56
Fund SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
MUIR & CO Investor A; 133,365.330; R 5.41 0.45
C/O FROST NATIONAL BANK
PO BOX 2479
SAN ANTONIO TX 78298-2479
CNA TRUST FBO Investor A; 128,972.708; R 5.23 0.44
SUPERIOR PRODUCTS MFG CO
U/A DTD 10/01/98
PO BOX 5024
COSTA MESA CA 92628-5024
BANK OF AMERICA NA Primary A; 24,842,246.331; R 92.71 84.88
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
PAMELA S KEENE & WILLIAM S KEENE & RUBY Primary B; 291.687; R 99.61 0.00
E KEENE & WILLIAM RAWLS KEENE
JTWROS
2016 ENGLEWOOD DR
APEX NC 27502
Marsico Focused MERRILL LYNCH, PIERCE, FENNER Investor A; 34.18 10.67
</TABLE>
221
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
Equities Fund & SMITH INC FOR THE SOLE BENEFIT 11,781,185.138; B
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
CHARLES SCHWAB & CO INC Investor A; 3,974,254.032; B 11.53 3.63
SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
MERRILL LYNCH, PIERCE, FENNER Investor B; 6,883,332.183; B 14.19 6.17
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
MERRILL LYNCH, PIERCE, FENNER Investor C; 7,247,832.251; B 56.85 6.53
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
BANK OF AMERICA NA Primary A; 9,623,111.578; R 50.37 8.80
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
CHARLES SCHWAB & CO INC Primary A; 3,822,929.598; B 20.01 3.51
SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
BANK OF AMERICA NA TTEE Primary A; 2,866,805.953; R 15.01 1.78
NB 401K PLAN
U/A DTD 01/01/1983
P O BOX 2518/TX4-213-06-14
HOUSTON TX 77252-2518
Strategic Growth GTRUST Investor A; 26,583.346; R 5.24 0.00
Fund PO BOX 2127
TOPEKA KS 66601-2127
NFSC FEBO # W52-021601 Investor C; 14,209.109; B 10.38 0.00
JOSEPH A CHABOT
KELLI D CHABOT
741 COTTONWOOD TERRACE
LIBERTY MO 64068
NFSC FEBO # W82-786535 Investor C; 10,919.344; B 7.98 0.00
THOMAS C AVERY
C/O R C LURIE CO
1002 E JEFFERSON ST
PHOENIX AZ 85034
</TABLE>
222
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
BANK OF AMERICA NA Primary A; 75,643,633.768; R 99.68 98.65
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Asset Allocation SEAFIRST BANK Investor A; 8,462,555.134; B 71.17 59.59
Fund FBO RETIREMENT SVCS
PO BOX 84248
SEATTLE WA 98124-5548
STATE STREET BANK & TRUST CO TTEE Investor C; 83,594.490; R 74.11 0.59
FBO COASTGEAR & COMPANY
ATTN: KEVIN SMITH
105 ROSEMONT AVE
WESTWOOD MA 02090
MICHAEL R MILLER P O BOX 1295 Investor C; 6,548.479; R 5.81 0.00
POMPANO BEACH FL 33061-1295
BANK OF AMERICA NA Primary A; 883,357.702; R 99.99 8.96
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Convertible STATE STREET BANK & TRUST CO TTEE Investor C; 110,190.571; R 54.98 0.00
Securities Fund FBO COASTGEAR & COMPANY
ATTN: KEVIN SMITH
105 ROSEMONT AVE
WESTWOOD MA 02090
NFSC FEBO # W79-001260 Investor C; 11,786.893; B 5.88 0.00
TATIANA LLC
ATT TATIANA BOTTON
1223 WILSHIRE BLVD #759
SANTA MONICA CA 90403
BANK OF AMERICA NA 000087 TXTRUST Primary A; 968,542.703; R 99.40 7.12
5000104686 968,542.703 18,373,255.08
99.3983
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Blue Chip Fund SEAFIRST BANK Investor A; 54.49 46.62
FBO RETIREMENT SVCS 13,161,298.690; B
PO BOX 84248
SEATTLE WA 98124-5548
1 STATE STREET BANK & TRUST CO TTEE Investor C; 401,366.734; B 74.78 1.42
FBO COASTGEAR & COMPANY
ATTN: KEVIN SMITH
105 ROSEMONT AVE
WESTWOOD MA 02090
BANK OF AMERICA NA Primary A; 1,001,617.431; R 97.79 3.54
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
Marsico 21st MERRILL LYNCH, PIERCE, FENNER Investor A; 335,629.653; B 12.91 3.30
Century Fund & SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
</TABLE>
223
<PAGE>
<TABLE>
<CAPTION>
Class; Amount of Shares Percentage Percentage
Fund Name and Address Owned; Type of Ownership of Class of Fund
---- ---------------- ------------------------ -------- -------
<S> <C> <C> <C> <C>
JACKSONVILLE FL 32246
CHARLES SCHWAB & CO INC SPECIAL CUSTODY Investor A; 132,967.745; B 5.12 1.30
ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
MERRILL LYNCH, PIERCE, FENNER Investor B; 340,577.291; B 5.55 3.33
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
MERRILL LYNCH, PIERCE, FENNER 0161 DFLT Investor C; 140,235.352; B 18.77 1.38
5002043296 140,235.352 1,332,235.84
18.7737
& SMITH INC FOR THE SOLE BENEFIT
OF ITS CUSTOMERS
ATTENTION SERVICE TEAM
4800 DEER LAKE DRIVE EAST
3RD FLOOR
JACKSONVILLE FL 32246
BANK OF AMERICA NA Primary A; 275,719.040; R 43.08 2.68
ATTN TONY FARRER
1401 ELM STREET, 11TH FLOOR
DALLAS TX 75202-2911
STEPHENS GROUP INC Primary A; 200,000.000 31.25 2.00
ATTN JOLENE JOHNSON
111 CENTER ST
LITTLE ROCK AR 72201
CHARLES SCHWAB & CO INC Primary A; 164,278.793; B 25.67 1.65
SPECIAL CUSTODY ACCOUNT
FOR BENEFIT OF CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO CA 94104
MidCap Index NFSC FEBO # W53-036803 DEBRA A DOWNS Investor A; 753.815; B 96.87 0.00
Fund ROBERT L DOWNS
888 JOHNSON
BLOOMSDALE MO 63627
BANK OF AMERICA NA TTEE Primary A; 38,548,767.765; R 97.63 95.49
NB 401K PLAN
U/A DTD 01/01/1983
P O BOX 2518/TX4-213-06-14
HOUSTON TX 77252-2518
</TABLE>
As of August 2000, Bank of America Corporation and its affiliates owned
of record more than 25% of the outstanding shares of the Companies acting as
agent, fiduciary, or custodian for its customers and may be deemed a controlling
person of the Companies under the 1940 Act.
224
<PAGE>
SCHEDULE A
----------
DESCRIPTION OF RATINGS
The following summarizes the highest six ratings used by Standard &
Poor's Corporation ("S&P") for corporate and municipal bonds. The first four
ratings denote investment-grade securities.
AAA - This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay interest
and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in a
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those
in higher-rated categories.
BB, B - Bonds rated BB and B are regarded, on balance as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. Debt
rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds that are rated Baa are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not as well safeguarded during both good times and bad times over
the future. Uncertainty of position characterizes bonds in this class.
A-1
<PAGE>
B - Bond that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aal, A1 or Baal,
respectively.
The following summarizes the highest four ratings used by Duff & Phelps
Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities
are investment grade.
AAA - Bonds that are rated AAA are of the highest credit quality.
The risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
A - Bonds that are rated A have protection factors which are
average but adequate. However risk factors are more variable and greater
in periods of economic stress.
BBB - Bonds that are rated BBB have below average protection
factors but still are considered sufficient for prudent investment.
Considerable variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may modified by the addition of a plus or minus sign to show
relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch
Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the
securities are investment grade:
AAA - Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and
BBB ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
A-2
<PAGE>
The following summarizes the two highest ratings used by S&P for
short-term municipal notes:
SP-1 - Indicates very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are given a "plus" (+) designation.
SP-2 - Indicates satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1 indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations each of which denotes that the securities are
investment grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 securities possess good credit quality. Issues carrying this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned the F-1+ and F-1 ratings.
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are
considered to have a superior capacity for repayment of senior short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have a strong capacity for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described
above.
For commercial paper, Fitch uses the short-term debt ratings described
above.
Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a
qualitative and quantitative analysis of all segments of the organization
including, where applicable, holding company and operating subsidiaries.
BankWatch ratings do not constitute a recommendation to buy or sell securities
of any of these companies. Further, BankWatch does not suggest specific
investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt
and preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA - The highest category; indicates ability to repay principal
and interest on a timely basis is extremely high.
A-3
<PAGE>
AA - The second highest category; indicates a very strong ability
to repay principal and interest on a timely basis with limited incremental
risk versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay
principal and interest is strong. Issues rated "A" could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus (-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned. The BankWatch short-term ratings specifically
assess the likelihood of an untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high
likelihood that principal and interest will be paid
on a timely basis.
TBW-2 The second highest category; while the degree of
safety regarding timely repayment of principal and
interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1".
TBW-3 The lowest investment grade category; indicates that
while more susceptible to adverse developments (both
internal and external) than obligations with higher
ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 The lowest rating category; this rating is regarded
as non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic
or financial conditions are unlikely to increase investment risk
significantly.
AA - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very
significantly.
A - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment
risk than for obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by
IBCA:
A1 + When issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely
repayment.
A2 - Obligations supported by a good capacity for timely repayment.
<PAGE>
NATIONS RESERVES
ONE BANK OF AMERICA PLAZA
33rd Floor
Charlotte, NC 28255
1-800-626-2275
FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. Exhibits
All references to the "Registration Statement" in the following
list of Exhibits refer to the Registrant's Registration Statement on Form N-1A
(File Nos. 33-33144; 811-6030)
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(a) Articles of Incorporation:
(a)(1) Declaration of Trust dated January 22, 1990, incorporated
by reference to Post-Effective Amendment No. 30, filed
March 7, 2000.
(a)(2) Classification of Shares dated February 4, 1998,
incorporated by reference to Post-Effective Amendment No.
30, filed March 7, 2000.
(a)(3) Classification of Shares dated December 2, 1998,
incorporated by reference to Post-Effective Amendment No.
30, filed March 7, 2000.
(a)(4) Classification of Shares dated March 31, 1999,
incorporated by reference to Post-Effective Amendment No.
30, filed March 7, 2000.
(a)(5) Classification of Shares dated May 26, 1999, incorporated
by reference to Post-Effective Amendment No. 30, filed
March 7, 2000.
---------------------- ---------------------------------------------------------
(b) Bylaws:
(b)(1) Amended and Restated Bylaws dated January 22, 1990, last
amended May 26, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(c) Instruments Defining Rights of Securities Holders:
Not Applicable
---------------------- ---------------------------------------------------------
C-1
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(d) Investment Advisory Contracts:
(d)(1) Investment Advisory Agreement between Banc of America
Advisors, Inc. (formerly NationsBanc Advisors, Inc.)
("BAAI") and Nations Reserves (formerly known as Nations
Institutional Reserves) ("Registrant") dated January 1,
1996, Schedule I dated March 15, 2000, filed herewith.
(d)(2) Sub-Advisory Agreement among BAAI, Banc of America
Capital Management, Inc. (formerly TradeStreet Investment
Associates, Inc.) ("BACAP") and the Registrant dated
January 1, 1996, Schedule I dated March 15, 2000, filed
herewith.
(d)(3) Interim Sub-Advisory Agreement among BAAI, Chicago Equity
Partners LLC ("Chicago Equity") and the Registrant dated
April 30, 2000, filed herewith.
(d)(4) Sub-Advisory Agreement among BAAI, Gartmore Global
Partners ("Gartmore") and the Registrant dated August 1,
2000, filed herewith.
---------------------- ---------------------------------------------------------
(e) Underwriting Contract:
(e)(1) Distribution Agreement between the Registrant and
Stephens Inc. ("Stephens") dated May 1, 1994, Schedule I
amended March 15, 2000, filed herewith.
---------------------- ---------------------------------------------------------
(f) Bonus or Profit Sharing Contracts:
(f)(1) Deferred Compensation Plan dated January 26, 1995,
incorporated by reference to Post-Effective Amendment No.
30, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(g) Custodian Agreement:
(g)(1) Custody Agreement between the Registrant and The Bank of
New York ("BNY") dated October 19, 1998, Schedule I dated
March 15, 2000, filed herewith.
(g)(2) Amendment to the Custody Agreement dated September 1,
1999, incorporated by reference to Post-Effective
Amendment No. 30, filed March 7, 2000.
(g)(3) Amendment to the Custody Agreement dated February 14,
2000, incorporated by reference to Post-Effective
Amendment No. 30, filed March 7, 2000.
---------------------- ---------------------------------------------------------
C-2
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(h) Other Material Contracts:
(h)(1) Co-Administration Agreement among the Registrant,
Stephens and BAAI dated December 1, 1998, Schedule I
dated March 15, 2000, Schedule A dated November 18, 1999,
filed herewith.
(h)(2) Sub-Administration Agreement among the Registrant, BNY
and BAAI dated December 1, 1998, Schedule I dated March
15, 2000, filed herewith.
(h)(3) Shareholder Servicing Plan relating to Adviser Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(4) Shareholder Servicing Plan relating to Investor B Shares,
Exhibit I amended March 15, 2000, filed herewith.
(h)(5) Shareholder Servicing Plan relating to Investor C Shares,
Exhibit I amended March 15, 2000, filed herewith.
(h)(6) Shareholder Servicing Plan relating to Daily Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(7) Shareholder Servicing Plan relating to Investor Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(8) Shareholder Servicing Plan relating to Liquidity Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(9) Shareholder Servicing Plan relating to Market Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(10) Shareholder Servicing Plan relating to Service Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
(h)(11) Shareholder Administration Plan relating to Trust Shares,
Exhibit I amended February 24, 1999, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
---------------------- ---------------------------------------------------------
C-3
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(h)(12) Shareholder Administration Plan relating to Investor B
and Investor C Shares, Exhibit I dated May 26, 1999,
incorporated by reference to Post-Effective Amendment No.
30, filed March 7, 2000.
(h)(13) Shareholder Administration Plan relating to Institutional
Shares, Exhibit I dated August 23, 2000, filed herewith.
(h)(14) Transfer Agency and Services Agreement between PFPC Inc.
(formerly First Data Investor Services Group) ("PFPC")
and the Nations Funds family dated June 1, 1995, Schedule
G dated August 1, 2000, filed herewith.
(h)(15) Amendment to Transfer Agency and Services Agreement dated
January 1, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
(h)(16) Sub-Transfer Agency Agreement between PFPC and Bank of
America, N.A. ("Bank of America") dated September 11,
1995, Schedule A dated August 1, 2000, filed herewith.
(h)(17) Cross Indemnification Agreement among Nations Fund Trust,
Nations Fund, Inc., Nations Master Investment Trust,
Nations Funds Trust and the Registrant dated February 14,
2000, incorporated by reference to Post-Effective
Amendment No. 30, filed March 7, 2000.
--------------------- ---------------------------------------------------------
(i) Legal Opinion
Opinion and Consent of Counsel, filed herewith.
---------------------- ---------------------------------------------------------
(j) Other Opinions
Not Applicable
---------------------- ---------------------------------------------------------
(k) Omitted Financial Statements
Not Applicable
---------------------- ---------------------------------------------------------
(l) Initial Capital Agreements:
Not Applicable
---------------------- ---------------------------------------------------------
C-4
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(m) Rule 12b-1 Plans:
(m)(1) Shareholder Administration Plan relating to Primary B
Shares, Exhibit I amended August 19, 1999, incorporated
by reference to Post-Effective Amendment No. 30, filed
March 7, 2000.
(m)(2) Shareholder Servicing and Distribution Plan relating to
Investor A Shares, Exhibit A amended March 15, 2000,
filed herewith.
(m)(3) Distribution Plan relating to Investor B Shares, Exhibit
A amended March 15, 2000, filed herewith.
(m)(4) Distribution Plan relating to Investor C Shares, Exhibit
A amended March 15, 2000, filed herewith.
(m)(5) Distribution Plan relating to Daily Shares, Exhibit A
amended February 24, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
(m)(6) Distribution Plan relating to Investor Shares, Exhibit A
amended February 24, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
(m)(7) Distribution Plan relating to Liquidity Shares, Exhibit A
amended February 24, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
(m)(8) Distribution Plan relating to Market Shares, Exhibit A
amended February 24, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
(m)(9) Distribution Plan relating to Service Shares, Exhibit A
amended February 24, 1999, incorporated by reference to
Post-Effective Amendment No. 30, filed March 7, 2000.
---------------------- ---------------------------------------------------------
(n) Financial Data Schedule:
Not Applicable
---------------------- ---------------------------------------------------------
C-5
<PAGE>
---------------------- ---------------------------------------------------------
Exhibit Letter Description
---------------------- ---------------------------------------------------------
(o) Rule 18f-3 Plan:
(o)(1) Rule 18f-3 Multi-Class Plan amended August 23, 2000,
filed herewith.
---------------------- ---------------------------------------------------------
(p) Powers of Attorney for Edmund L. Benson, Charles B.
Walker, A. Max Walker, Thomas S. Word, Jr., William H.
Grigg, James Ermer, Thomas F. Keller, Carl E. Mundy, Jr.,
James B. Sommers and Cornelius J. Pings, incorporated by
reference to Post-Effective Amendment No. 30, filed March
7, 2000.
---------------------- ---------------------------------------------------------
ITEM 24. Persons Controlled by of Under Common Control with the Fund
No person is controlled by or under common control with the
Registrant.
ITEM 25. Indemnification
Article VIII of the Agreement of Declaration of Trust provides for the
indemnification of the Registrant's trustees, officers, employees and other
agents. Indemnification of the Registrant's administrators, distributor,
custodian and transfer agents is provided for, respectively, in the
Registrant's:
1. Co-Administration Agreement with Stephens and BAAI;
2. Sub-Administration Agreement with BNY and BAAI;
3. Distribution Agreement with Stephens;
4. Custody Agreement with BNY;
5. Transfer Agency and Services Agreement with PFPC; and
6. Sub-Transfer Agency and Services Agreement with PFPC and
Bank of America.
The Registrant has entered into a Cross Indemnification Agreement with
Nations Fund Trust (the "Trust"), Nations Fund, Inc. (the "Company"), Nations
Master Investment Trust ("Master Trust") and Nations Funds Trust ("Funds Trust")
dated February 14, 2000. The Trust, the Company, Master Trust and/or Funds Trust
will indemnify and hold harmless the Registrant against any losses, claims,
damages or liabilities, to which the Registrant may become subject, under the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act") or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in any prospectuses, any preliminary prospectuses, the
registration statements, any other prospectuses relating to the securities, or
any
C-6
<PAGE>
amendments or supplements to the foregoing (hereinafter referred to collectively
as the "Offering Documents"), or arise out of or are based upon the omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Offering Documents in reliance upon and in
conformity with written information furnished to the Registrant by the Trust,
the Company, Master Trust, and/or Funds Trust expressly for use therein; and
will reimburse the Registrant for any legal or other expenses reasonably
incurred by the Registrant in connection with investigating or defending any
such action or claim; provided, however, that the Trust, the Company, Master
Trust and/or Funds Trust shall not be liable in any such case to the extent that
any such loss, claim, damage, or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Offering Documents in reliance upon and in conformity with written
information furnished to the Trust, the Company, Master Trust and/or Funds Trust
by the Registrant expressly for use in the Offering Documents.
Promptly after receipt by an indemnified party above of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission to so notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
The Registrant has obtained from a major insurance carrier a trustees'
and officers' liability policy covering certain types of errors and omissions.
In no event will the Registrant indemnify any of its trustees, officers,
employees, or agents against any liability to which such person would otherwise
be subject by reason of his/her willful misfeasance, bad faith, gross negligence
in the performance of his/her duties, or by reason of his/her reckless disregard
of the duties involved in the conduct of his/her office or arising under his
agreement with the Registrant. The Registrant will comply with Rule 484 under
the 1933 Act and Release No. 11330 under the 1940 Act, in connection with any
indemnification.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission ("SEC") such
indemnification is against public policy as expressed in the 1933 Act and,
therefore, is unenforceable. In the event that a
C-7
<PAGE>
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issues.
ITEM 26. Business and Other Connections of the Investment Adviser
To the knowledge of the Registrant, none of the directors or officers
of BAAI, the adviser to the Registrant's portfolios, or BACAP, Chicago Equity or
Gartmore, the investment sub-advisers, except those set forth below, are or have
been, at any time during the past two calendar years, engaged in any other
business, profession, vocation or employment of a substantial nature, except
that certain directors and officers also hold various positions with, and engage
in business for, the company that owns all the outstanding stock (other than
directors' qualifying shares) of BAAI, BACAP, Chicago Equity or Gartmore,
respectively, or other subsidiaries of Bank of America Corporation.
(a) BAAI performs investment advisory services for the Registrant and
certain other customers. BAAI is a wholly-owned subsidiary of Bank of America,
which in turn is a wholly-owned banking subsidiary of Bank of America
Corporation. Information with respect to each director and officer of the
investment adviser is incorporated by reference to Form ADV filed by BAAI with
the SEC pursuant to the Investment Advisers Act of 1940, as amended (the
"Advisers Act") (file no. 801-49874).
(b) BACAP performs investment sub-advisory services for the Registrant
and certain other customers. BACAP is a wholly-owned subsidiary of Bank of
America Corporation. Information with respect to each director and officer of
the investment sub-adviser is incorporated by reference to Form ADV filed by
BACAP (formerly TradeStreet Investment Associates, Inc.) with the SEC pursuant
to the Advisers Act (file no. 801-50372).
(d) Chicago Equity performs investment sub-advisory services for the
Registrant and certain other customers. Chicago Equity is owned by its senior
management. Information with respect to each director and officer of the
investment sub-adviser is incorporated by reference to Form ADV filed by Chicago
Equity with the SEC pursuant to the Advisers Act (file no. 801-55997).
(e) Gartmore performs investment sub-advisory services for the
Registrant and certain other customers. Gartmore is a general partnership which
is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company.
Information with respect to each director and officer of the investment
sub-adviser is incorporated by reference to Form ADV filed by Gartmore with the
SEC pursuant to the Advisers Act (file no. 801-48811).
C-8
<PAGE>
ITEM 27. Principal Underwriters
(a) Stephens, distributor for the Registrant, does not presently act as
investment adviser for any other registered investment companies, but does act
as distributor for Nations Fund Trust, Nations Fund, Inc., Nations LifeGoal
Funds, Inc., Nations Annuity Trust, Nations Funds Trust, Wells Fargo Trust,
Wells Fargo Variable Trust, and is the exclusive placement agent for Master
Investment Trust, Managed Series Investment Trust, Wells Fargo Core Trust,
Nations Master Investment Trust and Master Investment Portfolio, all of which
are registered open-end management investment companies, and has acted as
principal underwriter for the Liberty Term Trust, Inc., Nations Government
Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc.
and the Managed Balanced Target Maturity Fund, Inc., closed-end management
investment companies.
(b) Information with respect to each director and officer of the
principal underwriter is incorporated by reference to Form ADV filed by Stephens
with the SEC pursuant to the 1940 Act (file No. 501-15510).
(c) Not applicable.
ITEM 28. Location of Accounts and Records
(1) BAAI, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as investment adviser and
co-administrator).
(2) BACAP, One Bank of America Plaza, Charlotte, NC 28255 (records
relating to its function as investment sub-adviser).
(3) Chicago Equity, 180 North LaSalle, Chicago, IL 60601 (records
relating to its function as investment sub-advisor).
(4) Gartmore, Gartmore House, 8 Fenchurch Place, London EC3M 4PH,
England (records relating to its function as investment
sub-adviser).
(5) Stephens, 111 Center Street, Little Rock, AR 72201 (records
relating to its function as distributor and co-administrator).
(6) PFPC, 400 Bellevue Parkway, Wilmington, DE 19809 (records
relating to its function as transfer agent).
(7) BNY, 100 Church Street, New York, NY 10286 (records relating
to its function as custodian and sub-administrator).
(8) Bank of America, One Bank of America Plaza, Charlotte, NC
28255 (records relating to its function as sub-transfer
agent).
C-9
<PAGE>
ITEM 29. Management Services
Not Applicable
ITEM 30. Undertakings
Not Applicable
C-10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Little Rock, State of Arkansas on the
1st day of September, 2000.
NATIONS RESERVES
By: *
----------------------------------
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
----------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* President and Chairman September 1, 2000
-------------------------------- of the Board of Trustees
(A. Max Walker) (Principal Executive Officer)
/s/ Richard H. Blank, Jr. Treasurer and Secretary September 1, 2000
-------------------------------- (Principal Financial and
(Richard H. Blank, Jr.) Accounting Officer)
* Trustee September 1, 2000
--------------------------------
(Edmund L. Benson, III)
* Trustee September 1, 2000
--------------------------------
(James Ermer)
* Trustee September 1, 2000
--------------------------------
(William H. Grigg)
* Trustee September 1, 2000
--------------------------------
(Thomas F. Keller)
* Trustee September 1, 2000
--------------------------------
(Carl E. Mundy, Jr.)
* Trustee September 1, 2000
--------------------------------
(Cornelius J. Pings)
* Trustee September 1, 2000
--------------------------------
(Charles B. Walker)
* Trustee September 1, 2000
--------------------------------
(Thomas S. Word)
* Trustee September 1, 2000
--------------------------------
(James B. Sommers)
/s/ Richard H. Blank, Jr.
--------------------------------
Richard H. Blank, Jr.
*Attorney-in-Fact
</TABLE>
<PAGE>
NATIONS RESERVES
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
EX-23.d(1) Investment Advisory Agreement with Banc of America
Advisors, Inc.
EX-23.d(2) Sub-Advisory Agreement with Banc of America Capital
Management
EX-23.d(3) Interim Sub-Advisory Agreement with Chicago Equity Partners
EX-23.d(4) Sub-Advisory Agreement with Gartmore Global Partners
EX-23.e(1) Distribution Agreement
EX-23.g(1) Custody Agreement
EX-23.h(1) Co-Administration Agreement
EX-23.h(2) Sub-Administration Agreement
EX-23.h(4) Shareholder Servicing Plan relating to Investor B Shares
EX-23.h(5) Shareholder Servicing Plan relating to Investor C Shares
EX-23.h(13) Shareholder Administration Plan relating to Institutional
Shares
EX-23.h(14) Transfer Agency and Services Agreement
EX-23.h(16) Sub-Transfer Agency Agreement
EX-23.i Opinion and Consent of Counsel - Morrison & Foerster LLP
EX-23.m(2) Shareholder Servicing and Distribution Plan relating to
Investor A Shares
EX-23.m(3) Distribution Plan relating to Investor B Shares
EX-23.m(4) Distribution Plan relating to Investor C Shares
EX-23.o(1) Rule 18f-3 Multi-Class Plan
